Case Information
*2 Before: BECKER, NYGAARD & LEWIS, Circuit Judges
(Opinion Filed July 29, 1996)
Donald B. Wassall (Argued)
3154 Cheltenham Court
Gibsonia, PA 15044
Attorney for Appellants
James A. Wood
Marianne C. Plant (Argued)
Israel, Wood & Puntil
310 Grant Street
Suite 501
Pittsburgh, PA 15219
Attorneys for Appellees
Jeffrey R. DeCaro
DeCaro, Doran, Siciliano,
Gallagher, Sonntag &
DeBlasis
R. Bruce Morrison Marshall, Dennehey,
Warner, Coleman &
Goggin 1845 Walnut
Street
Philadelphia, PA 19103
Scott G. Dunlop
Marshall, Dennehey, Warner, Coleman & Goggin
600 Grant Street
2900 USX Tower
Pittsburgh, PA 15219
Attorneys for Appellee
O'Malley & Miles
OPINION OF THE COURT
NYGAARD, Circuit Judge.
In this diversity action alleging legal malpractice, the
Populist Party, its Executive Director and National Chairman,
Donald P. Wassall, various other Executive Committee Members, and
the Populist Observer ("plaintiffs") sue their former attorney,
Jeffrey R. DeCaro, and the two law firms at which DeCaro
practiced law while representing plaintiffs ("malpractice
defendants"). The district court granted summary judgment for
malpractice defendants, interpreting the Pennsylvania Supreme
Court case Muhammad v. Strassburger, McKenna, Messer, Shilobod &
Gutnick,
to bar plaintiffs' claims because plaintiffs had agreed to a
dismissal of their defamation action for failure to prosecute.
We will reverse.
I.
In July 1991, while DeCaro was a partner at O'Malley and
Miles, Wassall and the Populist Party engaged DeCaro's services
to sue The Spotlight, a political newspaper, and several other
defendants ("defamation defendants"), for printing negative
stories about Wassall and the Populist Party. After the
defamation suit was removed to federal court by the defamation
defendants in October 1991, DeCaro failed to serve three
defamation defendants, Mr. Piper, Mr. Tiffany, and Mr. Ryan,
within the allotted 120 days. Although the court extended the
time for service, DeCaro again failed to serve them.
In December 1992, DeCaro left O'Malley and formed the new
firm of DeCaro, Doran, Siciliano, Gallagher, Sonntag & DeBlasis,
where he continued to represent plaintiffs in the defamation
action. Over eighteen months after he filed the complaint,
DeCaro still had not served the three defendants. Consequently,
in July 1993, the court dismissed the claims as to these three
defendants for lack of service.
In litigating the underlying defamation case, DeCaro's
stewardship was shoddy at best. The record indicates that he
missed several deadlines, misfiled pleadings, and finally, failed
to file a pretrial statement required by the magistrate judge.
After DeCaro failed to file the pretrial statement, the
magistrate judge held a hearing to determine if plaintiffs'
defamation suit should be dismissed for failure to prosecute. At
argument, the magistrate judge agreed to give DeCaro two more
weeks to work toward settlement and to file the pretrial
statement, but Wassall suggested that the plaintiffs' defamation
claims and the defamation defendants' counterclaims be dismissed
for failure to prosecute. Plaintiffs assert that they agreed to
the dismissal because they "did not wish to suffer with
defendants any longer and [wanted] to put a merciful end to two
and a half years of malpractice. . . ." Defamation defendants
agreed to the mutual dismissals, and the magistrate judge
recommended that the district court dismiss the claims and
counterclaims for failure to prosecute. The district court
adopted the magistrate judge's recommendation and dismissed both
actions, thus ending the defamation action.
Plaintiffs then filed this legal malpractice action against
DeCaro, the DeCaro firm and the O'Malley firm. Plaintiffs allege
numerous acts of malpractice by DeCaro, inter alia: failing to
work diligently to settle the case, which resulted in an
unfavorable settlement; failing to move the case toward trial;
failing to serve three of the defendants in the defamation
action; failing to object to the magistrate judge's
recommendations timely; failing to meet almost every deadline;
failing to answer the counterclaim timely; failing to request
that the court set aside default judgments; filing a motion to
dismiss the counterclaim on behalf of counterclaim-defendants who
had not been served, but not on behalf of those who had; failing
to amend the complaint to incorporate many alleged ongoing
libels; misrepresenting, repeatedly, what services he would
perform for plaintiffs; failing to file a motion to dismiss the
counterclaims in the case filed by defendants/counterclaim-
plaintiffs and instead filing it in plaintiffs' case;
misrepresenting himself as an expert in defamation litigation;
failing to proceed with discovery; failing to request extension
of discovery deadlines and misrepresenting to plaintiffs that he
had; and failing to provide plaintiffs with filed documents.
Plaintiffs were unsatisfied with DeCaro's stewardship in every
aspect.
The malpractice defendants filed a motion to dismiss, which
the district court denied. The court granted malpractice
defendants' motion to bifurcate discovery and limit discovery to
whether Muhammad barred the malpractice suit. After limited
discovery, malpractice defendants filed a motion for summary
judgment, which the district court granted. The district court
believed that, because plaintiffs agreed in the underlying action
to permit the court to dismiss for DeCaro's failure to prosecute,
the dismissal constituted a settlement, and that, under Muhammad,
the settlement barred the malpractice action.
II.
Plaintiffs appeal, arguing that agreeing to dismissal of the
underlying defamation suit for failure to prosecute was not a
"settlement," and that even if it were a settlement, this would
not bar their suit. We need not resolve whether this constitutes
a settlement.
As a federal court sitting in diversity, we must do what we
predict the Pennsylvania Supreme Court would do. See, e.g., Erie
Castings Co. v. Grinding Supply, Inc.,
1984). In making this determination, we give proper regard to
the opinions of Pennsylvania's intermediate courts. See id. at
100. The policies underlying applicable legal doctrine, current
trends in the law and decisions of other courts also inform our
decision. See id.
Viewing the facts in the light most favorable to plaintiffs,
as we must when reviewing a grant of summary judgment, it appears
that DeCaro did not negotiate and complete a settlement,
frustrated efforts to have the case amicably resolved, wasted the
resources of the courts by his "footdragging," and seriously
impaired plaintiffs case, necessitating the agreement to have the
case dismissed. We predict that given these allegations and this
record the Pennsylvania Supreme Court would not extend its
holding in Muhammad to bar this action.
A.
Applying Muhammad, the district court held that
[u]nder Pennsylvania law, a dissatisfied plaintiff may
not maintain a suit for legal malpractice against his
attorney following a settlement to which the plaintiff
agreed.
The court erred, however, by not heeding the policy concerns
expressed in Muhammad.
Indeed, we believe the district court interpreted Muhammadtoo
broadly, ignoring subsequent opinions by the Pennsylvania
Superior Court which are well-reasoned and interpret Muhammadnarrowly. We
are convinced that the case was meant to bar an
action against an attorney who negotiates and consummates a
settlement or similar agreement. We predict that the
Pennsylvania Supreme Court would consider the policies enunciated
in Muhammad and find that they favor allowing the plaintiffs'
present action for malpractice.
B.
The Pennsylvania Supreme Court announced in Muhammad that a
client who becomes dissatisfied with an attorney's settlement of
an action, which the client had accepted, cannot then sue the
attorney for malpractice. In Muhammad, the plaintiffs originally
sued a hospital and others for medical malpractice. During
settlement negotiations, the hospital offered $23,000.00 to
settle the case and plaintiffs communicated their acceptance to
their attorney. The court suggested that the hospital increase
its offer to $26,500.00, which it did. Again, plaintiffs
accepted the settlement. Later, plaintiffs informed their
attorney that they were no longer satisfied with the amount of
the settlement. Notwithstanding the plaintiffs' protest, the
court enforced the agreement. Plaintiffs then hired new counsel
and appealed, but the enforcement was affirmed on appeal.
Undeterred, plaintiffs filed a malpractice suit against their
trial attorney. On appeal, the Pennsylvania Supreme Court
adopted a rule that important policy considerations supporting
settlements barred the subsequent legal malpractice action.
Although motivated by several considerations, the
encouragement of settlement was the most important motivating
factor for the court's decision. It opined:
The primary reason we decide today to disallow
negligence or breach of contract suits against lawyers
after a settlement has been negotiated by the attorneys
and accepted by the clients is that to allow them will
create chaos in our civil litigation system. Lawyers
would be reluctant to settle a case for fear some
enterprising attorney representing a disgruntled client
will find a way to sue them for something that "could
have been done, but was not." We refuse to endorse a
rule that will discourage settlements and increase
substantially the number of legal malpractice cases. A
long-standing principle of our courts has been to
encourage settlements; we will not now act so as to
discourage them.
The court also expressed its disfavor of "litigation
concerning litigation:"
Particularly troublesome to the efficacy of the courts
are these "second bite" cases; they require twice the
resources as a single case, yet resolve only a single
litigant's claims--thus denying access to the courts to
litigants who have never had a single resolution of
their dispute. For that reason, henceforth we should
view "litigation concerning litigation" cases with a
jaundiced eye.
Id. at 1350. As noted by the Pennsylvania Supreme Court, the
policy of avoiding "litigation concerning litigation" is aimed at
preserving resources and allowing access to the courts by other
litigants. The court, however, did not justify the decision to
bar the malpractice action primarily based on this concern, but
on the goal of encouraging settlements.
The Pennsylvania Superior Court originally read Muhammadbroadly, see
Miller v. Berschler,
1993) (Wieand, J., dissenting). The en banc court, however, in
McMahon v. Shea,
judge majority, four in dissent, with one concurring statement),
alloc. granted,
decision in Miller. In several cases, the Superior Court has
held that legal malpractice actions are not barred: 1) if the
attorney sued did not settle the case; (2) if the malpractice
plaintiff was forced to settle because of the attorney's
negligence; or (3) if the malpractice plaintiff does not try to
question, retrospectively, the amount of the settlement the
attorney negotiated. See, e.g., White v. Kreithen,
(Pa. Super.), alloc. denied,
All three of these situations operate in this case. Even
assuming that plaintiffs' agreement to the dismissal for failure
to prosecute constituted a settlement of the underlying action,
under the superior court authority, the plaintiffs would be
allowed to prosecute this malpractice case.
At one point in Muhammad, discussing the fraud exception,
the Pennsylvania Supreme Court states:
It is not enough that the lawyer who negotiated the
original settlement may have been negligent; rather,
the party seeking to pursue a case against a lawyer
after settlement must plead, with specificity, fraud in
the inducement.
interpreted the language in Muhammad referring to the attorney
having negotiated the settlement,
that Muhammad applies only to malpractice actions in which the
client sues the attorney who negotiated and completed the
settlement. See, e.g., White; see also Goodman v. Kotzen, 647
A.2d 247 (Pa. Super. 1994) (malpractice action allowed against
attorney who did not consummate settlement, but not allowed as to
attorneys who did), alloc. denied,
narrow reading of Muhammad comports with the express policy
concerns prompting the Pennsylvania Supreme Court's decision.
In White, a case more analogous to the situation here, the
superior court concluded that when a client is forced to settle a
case because of the attorney's negligence, the attorney may not
invoke Muhammad to preclude the malpractice claim, stating:
[A]fter appellant discharged appellees, allegedly for
failure to properly investigate and prepare her case
for trial, appellant was forced, due to her inability
to retain counsel, to accept the settlement figure
proposed by the judge. Moreover and quite importantly,
none of the motivating reasons for the Supreme Court
decision in Muhammad would be achieved by finding the
instant malpractice action barred. . . .
Ct. App. 1991) (plaintiff put in position where settlement was
only choice may sue for malpractice); Edmondson v. Dressman, 469
So.2d 571 (Ala. 1985) (same); Prande v. Bell,
Ct. Spec. App. 1995) (client told she had no choice but to settle
may sue attorney for malpractice).
Malpractice defendants argue that plaintiffs were not
"forced" to settle. This misses the point. Plaintiff "wanted
out" of the case, not for what they were getting in a settlement,
but because DeCaro had so shabbily represented them that they
merely wanted an end to the legal travail DeCaro had inflicted
upon them. The allegations and matters of record, taken in the
light most favorable to plaintiffs, suggest that, like the
plaintiff in White, plaintiffs here had little other choice.
Malpractice defendants' reliance on Martos v. Concilio, 629
A.2d 1037 (Pa. Super. 1993) and Spirer v. Freeland Kronz, 643
A.2d 673 (Pa. Super. 1994), alloc. denied,
1996), is misplaced. In both Martos and Spirer the attorney sued
for malpractice had done what he was hired to do: the attorney
had negotiated and completed the settlement agreement. Moreover,
both cases were decided before the superior court decision in
McMahon which announced that Muhammad was to be construed more
narrowly.
Malpractice defendants assert that
[a]ny settlement negotiations of Mr. DeCaro were
precluded by the appellants' actions in requesting that
the underlying actions be dismissed. Thus, appellants
cannot now be heard to complain that Mr. DeCaro failed
to negotiate the settlement to which Mr. Wassall
agreed.
This argument might be persuasive had DeCaro exerted a modicum of
effort towards settlement. The record reveals that at every turn
DeCaro missed yet another deadline. Of equal significance, the
record also suggests that he further jeopardized the plaintiffs'
defense to the counter-claim filed against them. With every
minute the case continued with DeCaro, plaintiffs' negotiation
position arguably waned and it became less likely that the
defamation defendants would be willing to settle the claims and
counter-claims on favorable terms, if at all. DeCaro cannot
seriously argue that, because plaintiffs wanted him out of the
case so bad that they were willing to accept a dismissal of their
own case, he is entitled to walk away from his acts and
omissions. Accepting this argument, surely, far from encouraging
settlements, would reward indolence and incompetence.
Although the Pennsylvania Superior Court has viewed
Muhammadnarrowly, it has done so not by creating artificial distinctions,
but by paying heed to the policy concerns underlying the
Pennsylvania Supreme Court's holding in Muhammad. A federal
district court in this circuit also has adopted the Superior
Court's position that Muhammad does not announce a broad rule.
In Builders Square, Inc. v. Saraco,
1994), the client sued its attorney for malpractice. The
district court distinguished Muhammad, stating:
This is not an action by a client who later became
dissatisfied with a settlement agreement consummated by
his attorney with the client's assent. It is an action
by a client dissatisfied with his attorney for
allegedly failing to communicate settlement offers and
depriving his client of an opportunity to settle a case
on terms far more favorable than those later available
in the circumstances in which the client was placed by
the attorney's conduct.
Id. at 750.
The district court in Builder's Square emphasized that its
ruling did not frustrate Pennsylvania's policy of encouraging
settlement because the attorney's negligence involved his failure
to communicate an earlier, more favorable, settlement offer. It
also distinguished Martos and Spirer by stating that those cases
involved clients who had become dissatisfied with the
consequences of their own decision to settle and were merely
expressing "retrospective unhappiness" with the settlement
agreement. The client in Builder's Square was dissatisfied at
the time of settlement, but was trying to mitigate the effects of
the attorney's negligence.
C.
The policies expressed in Muhammad, to preserve resources
and allow access to the courts by other litigants, are served by
allowing the present action for malpractice. Plaintiffs'
allegations, if proven, show an enormous waste of the court's
time by an unprepared attorney. Where the attorney's conduct in
this regard "forces" a client to acept a dismissal of the case,
allowing a subsequent malpractice action serves as a systemic
deterrent for this behavior and thus promotes the policies
articulated in Muhammad. An attorney who has neglected his role
as steward, hopelessly delaying, and perhaps prohibiting, the
system from properly resolving his client's case, should not be
able to seek safe haven in a dismissal that resulted because the
client could not risk allowing the attorney further to neglect
his role. Under these conditions, we are convinced that the
Pennsylvania Supreme Court would not shield DeCaro from liability
under the guise of encouraging settlements in general.
Moreover, DeCaro's alleged conduct runs counter to the
policy of encouraging settlements. It would be perverse, indeed,
if under Muhammad, the Pennsylvania Supreme Court would not allow
this case to go forward. One of plaintiffs' major complaints is
DeCaro's footdragging in settlement negotiations. This conduct
is documented by plaintiffs' letters to counsel urging him to
settle the case, and letters from defamation defendants' counsel
complaining of DeCaro's failure to negotiate at all regarding
settlement over a three-month period. Had DeCaro worked
diligently toward a settlement, this malpractice action might
never have been filed and the underlying action probably could
have been resolved more favorably to his clients. This would
have allowed other litigants their day in court sooner.
Discouraging this conduct would serve the salutary purposes
articulated by the Pennsylvania Supreme Court in Muhammad.
Furthermore, the Pennsylvania Supreme Court articulated in
Muhammad, as an additional reason for its decision, that
"settlements reduce the stress and concrescent negativity
associated with protracted litigation."
record suggests that as DeCaro delayed, defamation defendants
became less willing to agree to settle their personal differences
with plaintiffs and to refrain from printing derogatory stories
in The Spotlight in the future. Were a jury to find this
persuasive, the evidence would support a conclusion that DeCaro's
conduct increased rather than decreased the stress and negativity
by protracting the litigation.
We believe that the Pennsylvania Supreme Court would
consider the policies articulated in Muhammad, the superior court
cases interpreting Muhammad narrowly, and the jurisprudence of
other states, in determining whether it would extend Muhammad to
bar this present action. Having done so, we predict that it
would conclude that a broad reading of Muhammad would be an
unwise course which would run counter to the important policy
goals it expressed therein. Therefore, we hold that Muhammaddoes not bar
plaintiffs' malpractice action.
III.
Although the action is not barred, defendants assert that
plaintiffs cannot show any harm. Plaintiffs specifically allege
that they were harmed by counsel's failure to serve three
defamation defendants, which resulted in the court's dismissal of
the case against those defendants for lack of service.
Plaintiffs also allege that counsel did not engage in discovery,
seriously hampering their ability to prove their claims had they
gone to trial. A letter from defamation defendants' counsel
indicates that his clients had been amenable to an agreement
which would include a provision that, in the future, they would
refrain from engaging in the conduct complained of by plaintiffs.
The letter also indicates that as DeCaro procrastinated,
defamation defendants became less amenable to refrain from
disparaging remarks. The record has sufficient allegations and
is replete with evidence of DeCaro's omissions and the resulting
harm to plaintiffs. Indeed, in the defamation case the
magistrate judge and district judge often resolved motions
against plaintiffs based on DeCaro's failure to comply with
procedure, failure to respond to pleadings, and his failure to
follow the court's previous orders. These allegations, if
established to the satisfaction of a fact-finder, would be
sufficient to establish harm.
IV.
The O'Malley firm asserts as an alternative basis for
affirming the summary judgment in its favor that it cannot be
held liable for malpractice because, at the time DeCaro left the
O'Malley firm, although DeCaro had not served Pifer, Tiffany, and
Ryan within the 120 days contemplated by the Federal Rules,
DeCaro had been given more time to complete service. Further, it
argues, the dismissal of these defamation defendants for failure
to serve did not occur until well after DeCaro left the O'Malley
firm. Therefore, DeCaro's alleged negligence did not come to
"fruition" until after DeCaro left. With respect to discovery
negligence, the O'Malley firm makes the same argument:
O'Malley & Miles, however, cannot be held responsible
for any alleged legal malpractice arising out of the
failure to initiate discovery efforts as adequate time
to conduct discovery existed even after DeCaro had left
O'Malley & Miles . . . . The initial defamation suit
filed by Wassall wherein he had hired DeCaro was still
being litigated and discovery was still proceeding
while DeCaro was working at his new law firm. . . .
The district court did not discuss this basis for summary
judgment in its opinion because initial discovery in this
malpractice action had been limited to the Muhammad issue.
Plaintiffs argue that, because discovery was limited to the
Muhammad issue, affirming on this ground would be unfair. They
add that allocating fault among the two firms and DeCaro is not
properly performed on summary judgment.
The extent of O'Malley's liability and involvement has not
been thoroughly briefed due to the bifurcated discovery. In
their joint motion requesting the district court to bifurcate
discovery and initially limit it to the Muhammad issue, the
malpractice defendants stated:
Plaintiffs' Complaint contains twenty-one (21) counts
of alleged malpractice, in connection with the
underlying defamation actions which involved sixteen
(16) parties. As such, it is anticipated that
discovery regarding the underlying action will entail
numerous depositions, interrogatories, requests for
production of documents and requests for admissions.
Thus, affirming on this ground would deny plaintiffs the
opportunity to conduct discovery and properly defend against the
summary judgment motion.
The O'Malley firm also overlooks the fact that the three
defamation defendants who were not served within the 120 day time
period were not served while DeCaro worked for the O'Malley firm.
O'Malley essentially argues that because DeCaro's negligence
continued after he left the firm, it is relieved of its potential
liability. But the retainer agreement drafted by O'Malley
provides that it is between the O'Malley Firm (by DeCaro) and
plaintiffs. The agreement lists O'Malley as "the Attorney" and
DeCaro as the "Attorney who will be primarily responsible for the
representation of the Client." Nowhere does it state that all
liability for professional negligence travels with the primary
attorney.
Because discovery was bifurcated at the O'Malley firm's
request, we will not affirm on this alternative ground.
Plaintiffs should be given a full opportunity to support their
allegations regarding the O'Malley firm's liability in the
district court after discovery.
V.
In sum, we reverse the summary judgment in favor of
defendants and remand for further proceedings consistent with
this opinion.