Malpractice Claim Assignability Continues To Divide Courts

State courts remain divided on whether legal malpractice claims can be assigned to third parties. Most jurisdictions prohibit assignment of malpractice claims on public policy grounds, but some states allow them, occasionally under limited circumstances.

Recent decisions from Idaho, Massachusetts, Iowa, Nevada, Texas and South Dakota highlight these divergent approaches.

This article begins with the Idaho Supreme Court’s Nov. 19 ruling in Acorn Investments LLC v. Elsaesser and examines how different jurisdictions balance competing policy interests in determining whether legal malpractice claims can be assigned.

When a  legal malpractice claim is assigned, the client transfers the right to sue their attorney to a third party – in many cases, to the client’s former adversary in underlying litigation. In practice, this transfer may occur through settlement agreement, creditor collection procedures or corporate transactions.

Once assigned, the assignee controls the litigation and receives any financial recovery against the lawyer or law firm. Courts recognize that such a transfer may implicate public policy concerns. These concerns include:

• Stripping clients of control over whether to sue their attorneys;
• Eroding attorney-client privilege by allowing third parties to compel disclosure of confidential communications;
• Undermining attorneys’ duty of loyalty by creating conflicts between zealous advocacy and self-protection;
• Reducing legal claims to bargaining chips that financially distressed clients can trade for better settlements; and
• Threatening access to justice by making attorneys reluctant to represent underinsured defendants whose professional liability claims might later be acquired by judgement creditors.

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