Legal Malpractice; Muhammad Rule

Khalil v. Williams, 244 A.3d 830 (Pa. Super. 2021), allocatur granted Aug. 3, 2021, appeal docket 24 EAP 2021

The Pennsylvania Supreme Court granted allocatur in this legal malpractice action to consider the rule established in Muhammad v. Strassburger, McKenna, Messer, Shilobod & Gutnik, 587 A.2d 1346 (Pa. 1991) under which a dissatisfied client is generally barred from bringing non-fraud claims against her attorney following a settlement to which the client agreed.

Based on her dissatisfaction with a settlement agreement she signed in a premises liability action on advice of her attorneys, Dr. Khalil filed a legal malpractice action against the attorneys alleging legal malpractice based in negligence; legal malpractice based in breach of contract; negligent misrepresentation; breach of contract; and fraudulent misrepresentation. Specifically, Dr. Khalil averred that her former attorneys gave her erroneous advice about the effect a settlement agreement and release would have on related counterclaims. The trial court granted summary judgment in favor of the defendants based on the Muhammad rule.

Dr. Khalil appealed to Superior Court, arguing that the Muhammad rule does not apply because her non-fraud claims do not challenge the reasonableness of the settlement amounts, but rather are based on the allegedly erroneous advice received from her attorneys.  Dr. Khalil argued that her case is analogous to Collas v. Garnick, 624 A.2d 117 (Pa. Super. 1993), where the Superior Court found the Muhammad rule does not bar a malpractice claim against an attorney who advised  that signing a release would not adversely affect the client’s claims in a potential future case, and McMahon v. Shea, 688 A.2d 1179 (Pa. 1997), where the Supreme Court held that Muhammad does not bar malpractice claims that allege faulty advice about the possible consequence of entering into a legal agreement.

Superior Court agreed with the trial court that Muhammad rule barred Dr. Khalil’s claims sounding in negligence and contract against her former attorneys, explaining:

We agree with Appellant that Collas and McMahon are good law and Muhammad did not establish a blanket rule barring any non-fraud claim against a former attorney where the prior matter led to settlement. In particular, although our Supreme Court’s decision in McMahon was only a plurality decision, the three concurring justices disputed only that Muhammad be limited solely to its facts; those justices agreed that Muhammad does not apply to allegations of attorney negligence in a settled case that goes beyond a contention that the attorney was negligent in advising about a settlement amount. See McMahon, 688 A.2d at 1183. Most recently, in Kilmer v. Sposito, 146 A.3d 1275 (Pa. Super. 2016), we distinguished an attorney’s professional judgment in negotiating a settlement from the attorney’s failure to advise a client correctly on the law pertaining to the client’s interests, recognizing that under the latter scenario, the plaintiff’s claims are not barred by Muhammad. Id. at 1279-80 (citing McMahon in finding that plaintiff/wife was not barred from maintaining legal malpractice action where she followed attorney’s advice and elected to take against her late husband’s will when, by operation of law, she would have been entitled to a larger portion of the estate).

That said, if Collas and McMahon carve out an exception to Muhammad, Appellant did not plead facts in her complaint that fit within that exception. In her March 29, 2017 complaint, Appellant claimed that Attorneys Williams and Cole assured her the Travelers release would not affect her claims in the Pier 3 case. Appellant’s Complaint, 3/29/17, at Paragraph 19. Appellant, though, then alleged the following:

    1. After [Appellant] refused to sign the release as presented to her by [Attorneys] Williams and Cole, [Attorney] Cole presented [Appellant] with a different settlement release that contained an asterisk which [Attorney] Cole purported that the release in [the water damage case] would not precluded [Appellant] from asserting [her] counterclaims and joinder action in [the Assessment fees case].
    2. Relying on the assurance and [advice] of [Attorneys] Williams and Cole, [Appellant] signed the aforementioned release containing an asterisk.

Id. at Paragraphs 20-21.

Appellant went on to assert that she was surprised when Pier 3 and Wentworth moved for summary judgment based on the Travelers release, since she signed the version with the asterisk.

  1. To [Appellant’s] dismay, the release presented by counsel for [Pier 3 and Wentworth] was not the one presented to [Appellant] by [Attorney] Cole.
  2. The release presented by counsel for [Pier 3 and Wentworth] in the summary judgment motion in the [Assessment fees case] did not contain the aforementioned asterisk and was not the one signed by [Appellant].
  3. It became evident to [Appellant] that [Attorneys] Cole and Williams and/or counsel for [Pier 3 and Wentworth] switched the release. Nevertheless, [Appellant] would not have entertained a release without the assurances from [Attorneys] Williams and Cole that it would not affect her counterclaims and joinder claim in [the Assessment fees case].

Id. at Paragraphs 31-33 (emphasis added).

As these averments show, Appellant pled facts alleging that she was the victim of fraud. More specifically, she alleged that the Travelers release that she signed was intentionally switched with one that she did not sign, thus leading to her claims in a separate case to be dismissed due to the fraud. While claims of fraud are not barred under Muhammad, they also cannot be styled as claims sounding in negligence and breach of contract after a settlement has been accepted by the client.

While she does allege that her attorneys gave her flawed legal advice about the effect of signing the Travelers release, Appellant then alleges that she refused to sign the release unless the language she wanted was added. Id. at Paragraphs 19-20. Then, after she signed a release with the language she demanded, that release was intentionally switched and later used against her in a separate case. Id. at Paragraph 33. Put differently, Appellant is not alleging that it is her attorneys’ negligence that caused her damages; instead, she is alleging that her damages—dismissal of her claims in a separate case—were caused by fraud.

In contrast, neither of the plaintiffs in Collas and McMahon alleged conduct of the sort that Appellant has alleged. Instead, in both of those cases, the plaintiffs claimed that their attorneys failed to correctly advise them about well-established principles of the law in settling the case, and that it was these misstatements about the effect of the settlements that placed the plaintiffs’ claims outside the scope of the Muhammad bar against claims of negligence against a former attorney after a settlement has been reached.

Slip op. at 17-20.

The Pennsylvania Supreme Court granted allocatur to consider the following issues:

(1) Should the Court overturn Muhammad v. Strassburger, . . . 587 A.2d 1346 (Pa. 1991), which bars legal malpractice suits following the settlement of a lawsuit absent an allegation of fraud?

(2) Did the Superior Court misconstrue the averments in [P]etitioner’s complaint and err as a matter of law when it held that [P]etitioner’s legal malpractice claims were barred by Muhammad v. Strassburger?

For more information, contact Kevin McKeon or Dennis Whitaker.