Hark Orchids, LP v Buie & Conklin Benham, PC

• Opinion Published: December 30, 2024 (Zahra, J., for the Michigan Supreme Court)

• Docket No. 165761

• Kalamazoo County Circuit Court

Holding: Attorney fees incurred to correct or limit the damages caused by malpractice are inherent in the underlying injury in malpractice suits and are recoverable in a legal malpractice action.

Facts: Plaintiff Hark Orchids, LP sued its former attorneys, Defendants William Buie and Conklin Benham, PC for legal malpractice arising out of the Defendants’ representation of Hark Orchids in a workers’ compensation lawsuit. The former employee offered a global settlement for all of her claims, which she believed included claims for discrimination and retaliatory discharge. She offered to settle all claims for $125,000.

Defendants failed to notify or inform plaintiff of the proposed offer from the former employee. Defendants also did not convey or provide a copy of the offer in written form to plaintiff. Instead, defendants settled only the workers’ compensation claim for the amount of $35,823.84, and the litigation concerning workers’ compensation concluded. After the settlement, the former employee sued to recover additional damages under discrimination, retaliation and intentional infliction of emotional distress theories.

In the second lawsuit, Plaintiff was required to retain counsel and engage in discovery and pretrial motion practice. Accordingly, Plaintiff was required to incur additional attorney fees in the defense of a subsequent lawsuit by the former employee which could have been resolved by way of global settlement. Ultimately, the second lawsuit was dismissed on summary disposition in favor of the Plaintiff employer.

Plaintiff’s legal malpractice action against Defendants sought damages in the form of attorney fees incurred in the defense of the second lawsuit. Before the trial court, Defendants moved for summary disposition, arguing that under the American Rule, there was no liability for attorney fees absent express statutory or contractual authority, or evidence that their actions were malicious or fraudulent. The trial court agreed and dismissed Hark Orchids’ complaint because only negligence was alleged and not conduct rising to the level of fraud or other similarly wrongful conduct. On review, the Court of Appeals agreed, with a concurrence by Judge Shapiro which questioned whether the exclusion of compensation for attorney fees incurred as a result of legal malpractice should be maintained, given the widespread acceptance of such damages nationally.

The Michigan Supreme Court granted oral argument on the application pursuant to MCR 7.305(H)(1) and directed supplemental briefing on whether attorney fees could be recovered absent allegations of malicious, fraudulent or similarly wrongful conduct. Hark Orchids, LP v Buie, 513 Mich 949 (2023). In lieu of granting leave, the Supreme Court issued an opinion reversing the trial court and the Court of Appeals. Hark Orchids, LP v Buie, __ Mich __ (December 30, 2024).

In its holding, the Supreme Court reasoned that legal malpractice claims are intended to provide clients with “direct relief in court to rectify wrongful acts of their attorneys and vindicate the right of clients to competent representation.” Unlike many torts, a legal malpractice claim involves the exchange of services for compensation. Accordingly, legal malpractice claims “takes on unique qualities and characteristics of professional-services contracts.”

Key Appellate Ruling:

Attorney fees which were incurred in remedying the malpractice are recoverable as well as fees paid to the negligent attorney as long as they are not fees which would have been otherwise incurred.

Given this context, the remedy for legal malpractice is to attempt to place the client in as good a position as they would have been had the attorney performed competently. While many times a legal malpractice claims requires consideration of whether the client would have been successful in the underlying lawsuit, not every matter involves an adverse court judgment. “There are numerous circumstances in which an attorney can engage in malpractice, therefore harming the client without changing the ultimate result of a lawsuit. These circumstances include business transactions resulting in unnecessary costs or litigation, as well as cases in which the client was required to engage in additional litigation because of the attorney's negligent conduct.”

The Court explained that its determination did not conflict with the American Rule regarding attorney fee recovery. Relying on the Tennessee Supreme Court’s analysis of damages, the Court recognized that there are three categories of fees implicated in legal malpractice actions: 1) initial fees – fees paid to the attorney for work negligently performed; 2) corrective fees – fees incurred to remedy the negligently performed work and 3) litigation fees – fees paid by the plaintiff to sue the negligent lawyer. Only the “litigation” fees are contemplated by the American Rule and remain generally not recoverable. However, the “initial” and “corrective” fees are generally recoverable as elements of damages, subject to the limitation that such fees are reasonable and necessary to correct the malpractice. Further, any award should not place the client in a better position than they were before the malpractice. In other words, fees which would have been incurred even absent malpractice cannot be recovered.