Wood v. McGrath, North, Mullin & Kratz, P.C. – Divorce – Legal Malpractice
Wood v. McGrath, North, Mullin & Kratz, P.C., 256 Neb. 109, 589 N.W.2d 103 (Neb. 1999).
NATURE OF THE CASE: This dispute over the doctrine of judgmental immunity and its application arose in the context of a family law case involving divorce.
FACTS: Wood sued McGrath, North, Mullin & Kratz for legal malpractice alleging that one the law firm’s divorce lawyers had negligently represented her in a dissolution decree action. Wood alleged that McGrath North allowed her to accept less than her share of the marital estate and was negligent in informing her that the distribution excluded all rights to unvested stock options; that state law indicated that a trial court was likely to include them in the marital estate; that the settlement excluded $210,489 from the marital estate to account for the capital gains on that stock; and that the court would likely value the stock without deducting for any potential capital gains tax.
At trial Wood testified that the lawyer from McGrath North told her that an award of 40% was a good award and that judges normally ordered between 35-50%. Wood testified that the attorney never discussed or mentioned alternatives to settlement and never discussed any reasons for rejecting the proposed out of court settlement. Two attorneys testified that the law firm breached the standard of care by failing to inform Wood of all the issues related to the stock options and that the effect of the deduction taken for the capital gains tax and what trial court’s would generally do with such issues. They determined that McGrath North breached the standard of care because the lawyer did not fully inform his client.
At the close of evidence McGrath North moved for a directed verdict and the trial court granted the motion. The court of appeals held that judgmental immunity was applicable as the law regarding the stock and the capital gains was unsettled and as such, McGrath North was not obligated to give additional advice regarding the unsettled nature of relevant legal principles.
ISSUE: In presenting a client with a settlement offer, does an attorney have a duty to inform the client of possible options when the law relating to a relevant issue is unsettled?
RULE OF LAW: Yes. In presenting a client with a settlement offer, an attorney has a duty to inform the client of possible options when the law relating to a relevant issue is unsettled.
HOLDING AND DECISION: Lawyers must advise clients with respect to settlements with the same knowledge and diligence with which they pursue all other legal tasks. A lawyer should exert his best efforts to ensure that decisions of a client are made only after the client has been informed of relevant considerations.
Where there are reasonable alternatives, the attorney should inform the client that the issue is uncertain, unsettled, or debatable and allow the client to make decisions. The fact that an attorney does not inform the client of such issues does not mean that the attorney can be held liable for a failure to predict the future course of unsettled law. It is for the failure to inform that he will be held liable and not for his judgment regarding an area of unsettled law. Under these facts, there was a failure to inform. This was not an issue of judgmental immunity. The court of appeals was in error not to conclude that the firm was negligent as a matter of law.
DISPOSITION: Reversed and remanded.