Legal malpractice expert advises on failure to stay and settle patent case

A legal malpractice expert advises on a case involving a plaintiff who filed a patent infringement case against the underlying defendant. After many years, a federal jury returned a verdict in favor of the plaintiff and awarded $1.85 million. Defendant law firm located in South Dakota represented plaintiff on post-trial motions. The underlying defendant offered to settle the patent action for $2 million. The law firm rejected the offer and countered with a demand of more than $7 million. The defendant then offered $2.5 million and suggested a 30-day stay on pending post-trial motions. Negotiations went back and forth until $4 million was agreed upon. A day later, the federal court ruled on the post-trial motions in favor of the underlying defendant. The settlement offer was withdrawn.

Ultimately, a $2.5 million settlement was reached. The law firm withdrew $250,000 from the settlement fund as its fee.

The plaintiff hired a legal malpractice expert and sued the law firm for professional negligence.

Question(s) For Expert Witness

1. Did the defendant law firm meet the standard of care?

2. Was the law firm negligent in collecting its legal fee?

Expert Witness Response

Defendant was negligent in rejecting the offer of a joint motion to stay when: (1) the plaintiff’s attorney had concluded that the underlying defendant’s motion for judgment would probably be granted when the trial court ruled; (2) that a ruling on the motion could occur at any time during negotiations resulting in a judgment for the underlying defendant, which would preclude an enhanced settlement; and (3) that plaintiff was amenable to a reasonable settlement and desired to settle. Further, filing a joint motion for a stay would not have prevented a settlement in the sum of $4 million, as evidenced by the underlying defendant’s continuing desire to reach a settlement by the end of the year, often for tax purposes, and by its willingness to settle, albeit for a lesser amount, after the court's ruling on the motion. The risk of an adverse court ruling on the motion for judgment far outweighed any perceived settlement advantage to plaintiff in rejecting the offer to stay.

Additionally, the law firm was negligent in charging and collecting its $250,000 fee. Defendant did not prepare or submit a written fee agreement to plaintiff to represent him in this patent case and there was no agreement; defendant maintained records of hours spent and the hourly rates charged which totaled about $98,000, but plaintiff was never informed of this before the fee was collected, was never sent invoices, nor did he agree to the hourly rates charged; when defendant suggested a fee of $250,000, plaintiff was under the impression that the case had been settled for $4 million; defendant never disclosed to plaintiff that it had an opportunity to prevent an adverse ruling by the court, and negligently failed to obtain a stay which caused plaintiff to lose the $4 million settlement; of the $250,000 fee collected, only $102, 000 consisted of hourly fees and expenses incurred. The remainder of nearly $150,000 was considered by defendant to be a bonus for its extraordinary achievements.

As previously stated, the defendant’s negligence in failing to obtain a stay, resulted in a $1.45 million loss to plaintiff. Accordingly, the defendant breached its duty to plaintiff and is therefore not entitled to a fee under state law.

The expert has been a trial attorney for more than 50 years and has taught and published on the substance and procedural aspects of trial practice.