Nevada Supreme Holds Proceeds of Legal Malpractice Suit Cannot be Assigned

The Nevada Supreme Court expanded its prohibition against assigning legal malpractice claims to third parties, ruling on Thursday that an attorney’s client is also barred from assigning the proceeds of a lawsuit.

“Because such an assignment would allow parties to use legal malpractice claims as a bargaining chip in settlement negotiations, as occurred here, we conclude that public policy prohibits an assignment of proceeds from a legal malpractice claim to an adversary in the underlying litigation,” the 3-0 decision says.

The decision affirmed in part a ruling by the Eighth Judicial District Court in Clark County, but also reversed the trial court on one point. The Supreme Court held that Christopher Beavor can still pursue a malpractice action against his former attorney, Joshua L. Tomsheck, even though it set aside the assignment of the proceeds of the lawsuit.

The dispute that led to the malpractice claim began more than 10 years ago when Yacov Hefetz loaned $2.2 million to Toluca Lake Village, LLC to fund the purchase of a commercial property. Beavor used a guaranty agreement against his personal residence to secure the loan.

Toluca Lake Village filed for bankruptcy. Beavor never repaid the loan.

Hefetz filed a lawsuit, but a jury returned a verdict in Beavor’s favor. Hefetz hired a new attorney, who filed a motion for a new trial. Beavor got a new attorney as well; he hired Tomsheck to represent him.

Tomsheck responded to Hefetz’s motion for a new trial by filing a brief arguing only that the motion was not timely. He did not present any other arguments.

Judge James Crockett ruled that Hefetz’s motion for a new trial was timely and granted a new trial because Tomscheck had not made any substantive arguments against the request.

Beavor and Hefetz agreed to a settlement agreement in 2013. Beavor agreed to pay $300,000 to Hefetz and file a legal malpractice lawsuit against Tomsheck. He also assigned the proceeds of that lawsuit to Hefetz. The agreement stipulated that Hefetz’s lawyer, H. Stan Johnson, would litigate the malpractice action.

The Nevada Supreme Court first ruled in 1982 that a client cannot assign his or her right to file a malpractice claim to a third party because doing so would provide an incentive to file claims against their attorneys and sell it to the highest bidder, even if the action lacks merit. The opinion noted that high courts in Connecticut, Washington, and Indiana have made similar rulings.

The Nevada court’s opinion, however, notes that it has never before ruled on whether the proceeds of a lawsuit, not the lawsuit itself, can be assigned to a third party.

Beavor argued that his settlement agreement is not prohibited by the prior rulings because he retains control of the lawsuit, including any decision about how to settle the case.

The Supreme Court said the trial court made the right call when it decided that Beavor’s assignment of benefits was invalid because it circumvented the public policy that would otherwise bar such an arrangement.

“Though Beavor did not assign the malpractice clamor the benefit of Hefetz, effectively using the legal malpractice claim as a bargaining chip,” the opinion says.

But the Supreme Court said the trial court erred by also ruling that Beavor has forfeited his right to bring a malpractice action against Tomsheck because the settlement agreement gave Hefetz an “irrevocable right” to the proceeds.

Beavor pointed to several court rulings that held an attorney’s client retains the right to pursue a legal malpractice suit even if a court determines that benefits had been improperly assigned. The Supreme Court agreed.

“We therefore hold that a legal malpractice claim is vested in the client, and an invalid assignment, by itself, does not prevent aninjured client from pursuing a legal malpractice claim where the assignment has been set aside,” the opinion says.