Emotional distress and collectability in legal malpractice cases

Teresa Schmidt v. Timothy P Coogan (WA SC, October 9, 2014)

Washington’s Supreme Court held that uncollectability of the underlying judgment is an affirmative defense in legal malpractice claims that must be proved by the attorney. The court also held that emotional distress can be an element of damages in certain legal malpractice cases.

The reasoning on the limitation on emotional distress damages was not accepted by the dissent:

STEPHENS, J. (dissenting) – The attorney-client relationship is vital to the functioning of our justice system. The lead opinion erodes the trust that is central to this relationship by erecting artificial barriers to a client’s ability to fully recover damages against a negligent attorney. Insisting that emotional distress damages require a showing that the attorney’s actions were “particularly egregious,” lead opinion at 14, the lead opinion discounts the special nature of the attorney-client relationship and relies on a faulty analogy between attorney malpractice claims and negligent infliction of emotional distress (NIED) claims involving strangers. It would make more sense to analogize attorney malpractice claims to tort claims in other fiduciary contexts more closely resembling the attorney-client relationship. Because such damages should be allowed, where proved, I respectfully dissent.¹I agree with the lead opinion that collectability is an affirmative defense, not an element of every plaintiff-client’s case. Lead opinion at 4. This dissent addresses onlythe issue of emotional distress damages in attorney malpractice cases.

The lead opinion begins its analysis by discussing claims between strangers and noting that historically, Washington courts were cautious to award emotional distress damages. Lead opinion at 9. This reasoning relies on the refrain that “a negligent act should have some end to its legal consequences.” Hunsley v. Giard, 87 Wn.2d 424, 435, 553 P.2d 1096 (1976). But, Washington has moved away from the reasoning of Hunsley and allows recovery “when a plaintiffs emotional distress is ‘within the scope of foreseeable harm … , a reasonable reaction given the circumstances, and … manifest by objective symptomology.'” Lead opinion at 11 (alterations in original) (quoting Bylsma v. Burger King Corp., 176 Wn.2d 555,560,293 P.3d 1168 (2013).

As the lead opinion acknowledges, there are numerous circumstances where the State’s interest in protecting members of the public supersedes any reluctance to recognize valid emotional distress and does not require a physical impact or “objective symptomology.” Lead opinion at 10-11 (citing Chuang Van Pham v. Seattle City Light, 159 Wn.2d 527, 533-38, 151 P.3d 976 (2007) (emotional distress damages available for ethnic and race discrimination under Washington’s Law Against Discrimination, ch. 49.60 RCW); Berger v. Sonneland, 144 Wn.2d 91 , 113, 26 P.3d 257 (2001) (emotional distress damages available for medical malpractice); Whaley v. State, 90 Wn. App. 658, 674, 956 P.2d 1100 (1998) (emotional distress damages for breach of professional duty by a day care provider». These situations reveal a common thread justifYing the imposition of liability for emotional distress: a special relationship based on trust. When such a special relationship exists,

[i]t is not merely economic, and a reasonable person standing in the defendant’s sboes would easily foresee that its breach is likely to cause significant emotional distress. It will support emotional distress damages without proof of pbysical impact or objective symptomatology.

Price v. State, 114 Wn. App. 65, 73, 57 P.3d 639 (2002). In Price the court held that emotional distress damages were available against an agency that negligently facilitated a wrongful adoption. We should recognize that the attorney-client relationship is similarly a special relationship.

Instead, the lead opinion places a new restriction on plaintiffs alleging legal malpractice: they must prove the attorney’s negligence was “particularly egregious.” Lead opinion at 9. “Egregious” means “[elxtremely or remarkably bad.” BLACK’S LAW DICTIONARY 629 (10th ed. 2014). The lead opinion provides no additional guidance on how plaintiffs might show this. Yet, the lead opinion holds as a matter oflaw that Coogan’s actions were not egregious. Lead opinion at 14-15. Coogan failed to file a personal injury lawsuit against the correct defendant before the statute of limitations ran. Schmidt repeatedly inquired about the case, and Coogan ridiculed her for not trusting him. These actions look “remarkably bad” to me.

The lead opinion also characterizes Schmidt’s harm as primarily pecuniary, though her testimony at trial suggested that her personal injury has materially affected every aspect of her life. Id. at 15-16; Pet’r’s Supp!. Br. App. at 22-36. The authorities the lead opinion cites to draw a dividing line between negligence that foreseeably causes emotional distress and negligence that produces only economic losses do not support cutting off Schmidt’s emotional distress damages. Lead opinion at 12-13 (citing Vincent v. DeVries, 2013 VT 34, 193 Vt. 574, 72 A.3d 886, 894-95 (2013); RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 53 cmt. g (1998). Rather, they speak to commercial transactions or purely pecuniary losses. A personal injury involves much more. As the Court of Appeals recognized in Price, emotional distress damages are appropriate when negligence occurs in the context of a relationship preexisting the defendant’s duty, i.e., within a special relationship. Price, 114 Wn. App. at 71.

There is a significant difference between the relationship of a tortfeasor and a bystander and between an attorney and a client. While a negligent driver might not foresee that his negligent driving will cause emotional distress to a stranger, an attorney handling a personal injury case can foresee that negligent performance might cause emotional distress to the client. Our NIED rule anticipates the tortfeasorlbystander scenario, and applies in the particular situation where a plaintiff “observ[ es] an injured relative at the scene of an accident after its occurrence and before there is substantial change in the relative’s condition or location.” Hegel v. McMahon, 136 Wn.2d 122, 132,960 P.2d 424 (1998). I do not see why the lead opinion chose to analogize this situation to the present case, where an attorney, who owes specified fiduciary duties to a client, violates those duties and causes both financial and emotional harm to the client.

A far better analogy is to torts involving special relationships. Consider, for example, insurance bad faith, which involves a quasi-fiduciary relationship. “An action for bad faith handling of an insurance claim sounds in tort.” Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 389, 823 P.2d 499 (1992). “Claims of insurer bad faith ‘are analyzed applying the same principles as any other tort: duty, breach of that duty, and damages proximately caused by any breach of duty. “, Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 161 Wn.2d 903, 916,169 P.3d 1 (2007) (quoting Smith v. Safeco Ins. Co., 150 Wn.2d 478, 485, 78 P.3d 1274 (2003)). Emotional distress damages are recognized in this context based on the relationship of trust between the insurer and insured. As the Colorado Supreme Court explained:

[I]nsurance contracts are unlike ordinary bilateral contracts. First, the motivation for entering into an insurance contract is different. Insureds enter into insurance contracts for the fmancia1 security obtained by protecting themselves from unforeseen calamities and for peace of mind, rather than to secure commercial advantage. Second, there is a disparity of bargaining power between the insurer and the insured; because the insured cannot obtain materially different coverage elsewhere, insurance policies are generally not the resuIt of bargaining.

Goodson v. Am. Standard Ins. Co. of Wis. , 89 P.3d 409, 414 (Colo. 2004) (citations omitted); see also Miller v. Kenny, 180 Wn. App. 722, 802, 325 P.3d 278 (2014) (explaining that tort damages for insurance bad faith in Washington include emotional distress damages).

Many of the same characteristics are equally prominent in the attorney client relationship. People tum to attorneys to help them recover after calamities occur. People hire attorneys for the peace of mind that comes from having the assistance of a professional, rather than facing a lawsuit alone. Attorneys inherently have more bargaining power than their clients when entering into a contract for service, if for no other reason than such contracts are legal documents; laypeople hire attorneys primarily because they need assistance to understand the legal consequences of events and documents.

These considerations appear in this case as wei!. Schmidt suffered significant injuries from an unexpected slip and fall at a grocery store. Lead opinion at 1; Pet’r’s Supp!. Br. App. at 12-34. These injuries interfered with her relationships and work. Pet’r’s Supp!. Br. App. at 12-34. She sought legal counsel because she needed professional assistance in order to bring her claims. Id. at 40-41. Coogan prepared a contingency fee arrangement without any bargaining with Schmidt. Id. at 39-40. There is no evidence in the record to suggest that Schmidt had a realistic chance of finding a substantially different arrangement with another attorney. See Goodson, 89 P.3d 409. And, Schmidt continued relying on Coogan because she trusted him. Pet’r’s Suppl. Br. App. at 55. Certainly the relationship between attorney and client here was no less one of trust than the insurer/insured relationship. The lead opinion offers no justification for cutting off the emotional distress damages in this true fiduciary relationship when an insured would be entitled to pursue such damages against a negligent insurer in a quasi-fiduciary relationship.

In the end, the lead opinion’s rule rests on the wrong analogy, that of NIED claims between strangers. It reflects nothing more than a judicial determination that emotional distress damages are unforeseeable in this context. The proffered rationale for erecting a barrier to recovery is the lead opinion’s conclusion that Schmidt suffered merely a “pecuniary loss” and that the subject matter of her personal injury suit “was not particularly sensitive” because “she did not lose her freedom and Coogan’s actions were not egregious.” Lead opinion at 14. Given that other classes of fiduciaries and quasi-fiduciaries do not receive the special protections that attorneys do under the lead opinion’s rule, I find this unsatisfying. The special relationship between attorneys and their clients should not shield attorneys whose malpractice foreseeably causes emotional distress. Rather, the special relationship should allow for greater recovery because of the greater harm that a negligent attorney may inflict upon a trusting client. I respectfully dissent.