Legal Malpractice Claim: Recommending an Unreasonable Settlement

The Defendant’s second act of legal negligence involved a claim that Mr. Anderson had negligently recommended (actually forced) the co-trustees to settle a claim brought by a foreign (German) beneficiary of the estate who claimed the distribution of the estate was delayed. This beneficiary, a distant relative named Stephan, was entitled to a10% distribution of the estate on his own, but also would have been entitled to an additional 8.75% interest if his aunt Clara (William Wachter’s 99 year old sister) “survived distribution”. She did not. She lived only 17 months after the estate was opened and pursuant to the express terms of the trust, her 8.75% interest was to go to Eleanore Muenchau, one of the co-trustees.

Stephan claimed that Eleanore, as a co-trustee, had purposely delayed the distribution so she could get Clara’s interest when Clara died. Defendant Gregg Anderson represented the estate and fought Stephan’s delay claim aggressively but after years of litigating, ended up recommending that the co-trustees pay Stephan $2,000,000. The co-trustees agreed and Stephan was paid an immediate, tax-free $2,000,000 distribution which resolved both his own interest and the claim of Clara.

Mr. Anderson passed away about seven months later. After Mr. Anderson passed away and new counsel came in to represent the estate, he raised the issue that the payment to Stephan may have been excessive and improper.

It was determined through discovery in the malpractice case that Gregg Anderson, (for reasons never fully known) had failed to fully and properly disclose a significant estate asset in accountings and other documents he filed with the court. The asset, an approximate $2,000,000 piece of property, had been quietly sitting in a Wachter bypass trust. The existence of the asset was clearly known to Anderson, but never fully disclosed or valued. The discovery of the omitted asset was finally made in to Stephan attorneys about two months prior to a scheduled mediation. The omitted asset (which the plaintiff co-trustees claimed they never knew had not been disclosed) became the basis of an aggressive attack by Stephan’s attorneys against the co-trustees and Mr. Anderson. These included charges of trustee fraud, breach of fiduciary and trustee malfeasance (mostly made in confidential mediation briefs). At the mediation, Mr. Anderson strongly recommended the trustees pay the $2,000,000 demanded by Stephan. The co-trustees claimed they felt they had “no choice” but to settle, and were frightened at the level of aggressiveness and threats being made by Stephan’s attorneys, and Anderson’s failure to present any defense.

We contended that the $2,000,000 paid to Stephan was significantly beyond anything Stephan’s “unreasonable delay” claim was worth. We claimed that Anderson pushed this excessive settlement to avoid the publicity, disclosure, and possible liability he faced for failing to disclose the “hidden asset”.

Plaintiffs additionally claimed that Mr. Anderson had breached his fiduciary duty by not disclosing to them his own wrongdoing and his own possible exposure for any damages the estate faced. Eleanore Muenchau (in her individual capacity) claimed that Mr. Anderson had failed to advise her of the various conflicts of interest that existed as a result of Anderson’s representation of both co-trustees and Mrs. Muenchau individually.

At the trial of this case held in Marin, County, California, Plaintiffs showed that under a true valuation of the estate’s assets, Stephan would have been entitled to approximately $1,200,000 for his actual 10% interest. Plaintiffs therefore claimed that Stephan had been overpaid $800,000 in the settlement, an amount which would have gone to co-trustee Eleanore Muenchau. Expert witnesses established that Stephan’s claim of “unreasonable delay” lacked merit, that the co-trustees had done nothing to delay distribution and that had Stephan’s claim gone to trial, he would not have prevailed.

Defendants claimed that Stephan’s claim of “unreasonable delay” was not frivolous, had at least some merit, that Anderson had properly represented the trustees and Ms. Muenchau without conflict. The defense contended that the $2,000,000 paid to Stephan was within the “realm of reason”, that settling cases is not an exact science, and that many other factors went into the decision of paying Stephan $2,000,000. They claimed that in any event, Plaintiffs entered into the settlement willingly and knowingly, had been prepared to pay Stephan $1,500,000 even before the mediation and that Plaintiffs complaint of an excessive and unreasonable settlement was nothing but hindsight.

The jury was presented the case on a special verdict form which had a series of questions, the first of which was whether the Defendants were negligent or had otherwise breached their fiduciary duty to plaintiffs. The jury voted 9-3 in favor of Plaintiffs on this question. The second question, the proximate causation issue, essentially asked if the settlement was reasonable notwithstanding the wrongdoing of the defendants. On this question, one of the nine jurors finding in favor of Plaintiffs on the liability issue decided that the settlement was nevertheless reasonable. Two days of jury deliberations failed to break the deadlock. The jury hung 8-4 for Plaintiffs on proximate causation. They never got to the damages issue.

The tax penalty claim was settled for $375,000. (There is the possibility of more being recovered if the refund claim is successful.

The excessive settlement claim was settled for $407,500 about three weeks after the mistrial.

As part of the overall settlement, Plaintiffs were relieved of a $125,000 fee claim being made by the Anderson firm.

Total recovery to the clients was $907,500.00.