ILNews

Legal malpractice claims not assignable

Jennifer Nelson
January 1, 2007
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In an Indiana Supreme Court ruling, the majority of justices held that legal malpractice claims are not assignable and courts cannot require a person to assign his or her chose in action.

In State Farm Mutual Automobile Insurance Co. v. Ruth Estep, Personal Representative of the Estate of Ewing Dan Estep, and Assignee of Rights of James D. Perkins, the high court yesterday reversed the trial court's order during proceedings supplemental forcing James Perkins' assignment of any potential chose in action against State Farm and held invalid any assignment by Perkins against his attorneys.

James Perkins had been ordered by the trial court to assign any cause of action he may have against his insurer, State Farm, to Ruth Estep, the personal representative of the estate of Ewing Dan Estep, who died as a result of injuries suffered from a motorcycle crash caused by Perkins. The estate was trying to recover $615,000 still owed from a judgment against Perkins in a personal injury action initiated before Estep's death.

In the original suit, Perkins retained his personal attorney, Jerry Susong, as co-counsel to Michael Stephenson, who was retained by State Farm. In March 2002, the jury awarded Estep's estate $675,000. The day after the verdict, State Farm paid Perkins' full policy limit of $50,000 to the estate, and the estate initiated proceedings supplemental a month later pursuant to Trial Rule 69(E) against Perkins for the unpaid amount.

Stephenson withdrew that July, concluding he completed his defense obligations under Perkins' insurance policy. Susong continued to represent Perkins. After Stephenson withdrew, the estate sought an order to have Perkins assign to it any cause of action Perkins may have against State Farm. Perkins refused and denied there was basis for any bad faith claims, but the court ordered him to assign to the estate any potential bad faith claims he may have against State Farm.

Perkins assigned to the estate all potential claims, demands, and causes of actions arising from the estate's personal injury claim against him. As a result, the estate sued State Farm in an Illinois court for the uncollected $615,000, alleging State Farm breached its duty of good faith owed to Perkins by not providing a conflict-free defense because Stephenson tried to withdraw his representation of Perkins but was denied. The estate also sued Susong, claming he should have told Perkins that Stephenson had a conflict of interest.

State Farm moved to intervene in the Indiana proceedings supplemental and asked the order compelling Perkins' assignment be vacated. The trial court denied both motions.

The Supreme Court, in a majority opinion written by Chief Justice Randall T. Shepard, concluded just as the court held under Picadilly Inc. v. Raikos, 582 N.E.2d 338, 341 (Ind. 1991), that legal malpractice claims are not assignable. Perkins could file a suit against Susong directly, but he cannot assign this to a third party because such assignments would be harmful to the lawyer-client relationship.

The majority also found the trial court ordering Perkins' forced assignment of his chose in action against State Farm was an error. Perkins can directly sue State Farm or voluntarily assign his chose in action, but he cannot be forced to assign it. Indiana follows the Direct Action Rule that prohibits a third party or judgment creditor from directly suing a judgment debtor's insurance carrier to recover an excess judgment.

In a separate opinion, Justices Ted Boehm and Brent Dickson dissented, noting State Farm should have been allowed to intervene in the proceedings supplemental and that the trial court erred in ordering assignment of Perkins' claims against State Farm.

Justice Boehm wrote that State Farm did not show a cognizable interest under Trial Rule 24(A) to intervene in the proceedings supplemental and does not satisfy all of the requirements under the rule.

Also in his dissent, Justice Boehm wrote that proceedings supplemental courts have a power to compel a judgment debtor to assign the debtor's potential causes of actions against third parties, just as other assets may be compelled to be transferred, so the assignment by the proceedings supplemental court was appropriate even though it was over Perkins' objection. 
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  1. Hail to our Constitutional Law Expert in the Executive Office! “What you’re not paying attention to is the fact that I just took an action to change the law,” Obama said.

  2. What is this, the Ind Supreme Court thinking that there is a separation of powers and limited enumerated powers as delegated by a dusty old document? Such eighteen century thinking, so rare and unwanted by the elites in this modern age. Dictate to us, dictate over us, the massess are chanting! George Soros agrees. Time to change with times Ind Supreme Court, says all President Snows. Rule by executive decree is the new black.

  3. I made the same argument before a commission of the Indiana Supreme Court and then to the fedeal district and federal appellate courts. Fell flat. So very glad to read that some judges still beleive that evidentiary foundations matter.

  4. KUDOS to the Indiana Supreme Court for realizing that some bureacracies need to go to the stake. Recall what RWR said: "No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!" NOW ... what next to this rare and inspiring chopping block? Well, the Commission on Gender and Race (but not religion!?!) is way overdue. And some other Board's could be cut with a positive for State and the reputation of the Indiana judiciary.

  5. During a visit where an informant with police wears audio and video, does the video necessary have to show hand to hand transaction of money and narcotics?

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