Negotiating Contracts And Legal Malpractice

By a 5-4 vote, the Mississippi Supreme Court affirmed the grant of summary judgment to the defendants in a legal malpractice case on causation grounds, applying malpractice law in the transactional context

In this legal-malpractice case, Gulfport OB-GYN contends that Dukes, Dukes, Keating, and Faneca negligently drafted a noncompetition covenant for one of its physicians, leading to a substantial financial loss when the physician left to start her own practice. The circuit court granted summary judgment to the defendants after finding Gulfport OB-GYN had failed to produce sufficient evidence that it would have received a better deal but for the attorneys’ alleged negligence, i.e., Gulfport OB-GYN failed to prove that the alleged negligence caused it damages. We agree and affirm.

The task

Gulfport OB-GYN is a professional association of physicians specializing in obstetrical and gynecological care. In 2008, it hired the law firm Dukes, Dukes, Keating & Faneca, P.A., to assist in negotiating the hiring of Dr. Donielle Daigle and to prepare an employment agreement for her. The attorney primarily assigned to the matter was Ja’Nell Blum. The negotiations culminated in Dr. Daigle’s hiring, subject to an employment agreement prepared by Blum and executed by both principals. The employment agreement contained a noncompetition covenant with substantially the same language Gulfport OBGYN had accepted in previous employment agreements prepared by another law firm.

The triggering event

Five years later, Dr. Daigle and another physician left Gulfport OB-GYN to establish their own practice. They sued Gulfport OB-GYN for unpaid compensation and sought a declaratory judgment that the noncompetition covenant was unenforceable. The departing physicians ultimately prevailed, with the chancery court holding the noncompetition covenant not applicable to Dr. Daigle because she left voluntarily and was not “terminated by the Employer.” The chancery court decision was initially appealed, but the dispute was later settled through mediation when Gulfport OB-GYN agreed to pay Dr. Daigle $425,000. Gulfport OB-GYN then filed this legal-malpractice suit against Blum and her firm.

In the negotiation process 

“[i]f the alleged error is the failure to obtain or advise of a provision, concession or benefit, the client must prove that the other party would have agreed.” 3 Ronald E. Mallen and Jeffrey M. Smith, Legal Malpractice § 24.5 (updated 2019), Westlaw…

On appeal, Gulfport OB-GYN attempts to couch its cause of action as a separate species of professional malpractice, negligent draftsmanship, which it asserts is different from a transactional malpractice claim in that mere drafting does not have a “negotiation element,” and thus there is no requirement that the other party would have agreed to the different terms the plaintiff now says should have been included in the contract.

A failure of proof

Blum’s affidavit fails to establish what Gulfport OB-GYN claims it does, that there was an agreement between the parties to execute a noncompetition covenant on terms other than those used in the contract. In fact, the record affirmatively suggests the opposite, that the proposed employment contract was tendered to Dr. Daigle’s attorney early in the negotiations and that it, in actual fact, constituted the agreement between the parties. Every iteration of the noncompetition covenant contained the “following termination of her employment by the Employer” language Gulfport OB-GYN complains was negligently drafted.

Thus

Causation in a negligence-based legal-malpractice claim for a breach of the duty of care requires proof that, but for the attorney’s negligence, a more favorable result would have been obtained. Thus, when the complaint is that the attorney should have proposed different or additional terms to a transaction, the malpractice plaintiff must show that such terms would have been accepted by the other party or that the client would not have entered into the deal and would have been better off for doing so. Absent such proof there exists no genuine issue of material fact as to causation of damages, and summary judgment is appropriate.

There are genuine issues argues this dissent

Although Gulfport OB-GYN did not allege a breach of fiduciary duty, it did allege that Blum’s breach, i.e., her negligent drafting, “cause[d] injury to the client entirely separate from the merits of the underlying case.” Id. Gulfport OB-GYN sued for damages caused by Dr. Daigle’s lawsuit against it. Gulfport OB-GYN’s attorneys’ fees resulted from its litigation with Dr. Daigle. Dr. James Gaddy, with Gulfport OB-GYN, testified that Gulfport OB-GYN would not have had to defend the lawsuit filed by Dr. Daigle or had a judgment entered against it if Blum had properly drafted the agreement. Gulfport OB-GYN’s expert witness agreed. Thus, it appears that the traditional trial-within-a-trial analysis does not apply to this negligent-drafting legal-malpractice case. In other words, because Gulfport OBGYN presented evidence of injury entirely separate from the merits of the underlying case, its claims should survive, even absent a showing that it would have won the underlying lawsuit…

Had Blum properly drafted the covenant not to compete, one of two things would have occurred: (1) Dr. Daigle would have refused to sign the agreement, in which case Gulfport OB-GYN would have avoided its damages because it would not have employed Dr. Daigle, or (2) Dr. Daigle would have signed the agreement, in which case she would be unable to argue that she could compete with Gulfport OB-GYN upon her resignation. Either way, Gulfport OB-GYN’s damages were foreseeable and avoidable. In my opinion, this satisfies the causation element of negligence.

I do not find that this case falls within the traditional trial-within-a-trial analysis for purposes of proving cause in fact. Nevertheless, the record shows that sufficient evidence was presented that “but for [Blum’s drafting] error there would have been an enforceable covenant not to compete.” As a result, I would reverse the circuit court’s entry of summary judgment and remand this matter for trial.

(Mike Frisch)