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BUILDERS SQUARE, INC. v. SARACO

November 28, 1994

BUILDERS SQUARE, INC.
v.
JOSEPH J. SARACO



The opinion of the court was delivered by: JAY C. WALDMAN

 WALDMAN, J.

 November 28, 1994

 Plaintiff alleges that it sustained damages as a result of defendant's legal malpractice and breach of fiduciary duties. Presently before the court is defendant's Motion to Dismiss the complaint in this diversity case for failure to state a claim on which relief may be granted.

 In deciding a Rule 12(b)(6) motion, the court accepts as true all of plaintiff's allegations and inferences reasonably drawn therefrom, and views them in a light most favorable to the nonmoving party. Rocks v. Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989). Dismissal is not appropriate unless it clearly appears that plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984).

 Plaintiff was a defendant in a products liability suit filed in the Bucks County Common Pleas Court on February 25, 1992. Plaintiff was the retailer of the allegedly defective product. Also named as a defendant was Randi Enterprise Company ("Randi"), the distributor of the product. Randi had $ 1 million of liability coverage under a policy issued by National Union Fire Insurance Company of Pittsburgh ("National Union"). Pursuant to agreements of Randi and National Union to defend and indemnify Builders Square, defendant Saraco entered an appearance on behalf of plaintiff on August 3, 1992. Defendant was paid by National Union.

 On January 27, 1993 and on May 4, 1993, the plaintiffs in the Bucks County action formally offered to settle their claims for $ 1 million, the limit of the National Union policy. Defendant Saraco rejected the offers without consulting plaintiff and first informed plaintiff of the settlement offers just prior to the commencement of trial in May 1994. Defendant also failed to apprise plaintiff of a conflict of interest once it appeared that National Union could not settle for less than its maximum exposure and thus risked little in proceeding to trial. Plaintiff alleges that defendant failed to exercise independent professional judgment but deferred to National Union in the conduct of the products liability case in lieu of his allegiance to plaintiff.

 Plaintiffs in the Bucks County action refiled their case in the Eastern District of Pennsylvania on July 28, 1993. They subsequently increased their settlement demand to $ 7 million after obtaining a medical evaluation indicating that the plaintiff wife's condition was more serious than they had originally thought.

 On May 13, 1994, after learning of the earlier settlement offers, plaintiff demanded that National Union immediately retain independent counsel to represent Builders Square, and protested the manner in which the underlying litigation and settlement discussions had been conducted. Trial was scheduled to commence on May 16, 1994.

 Defendant Saraco withdrew his representation and Robert St. Leger Goggin entered an appearance for Builders Square just prior to trial. On May 19, 1994, after three days of trial, the parties agreed to a $ 4.25 million settlement, a figure recommended by the trial judge. Of that amount, Builders Square contributed $ 3.25 million, $ 2 million in cash and $ 1.25 million from its excess insurance which represented the limit of that coverage.

 Plaintiff alleges that defendant's failure to pursue the earlier settlement opportunities, his failure adequately to prepare the case for trial and his failure to apprise plaintiff of a conflict in time to allow new counsel adequately to prepare for trial placed plaintiff in a much weaker position to defend or settle the case. In the settlement agreement and general release, plaintiff explicitly reserved all claims against defendant Saraco.

 An attorney has a duty to explore and timely communicate to his client settlement offers, as well as other information important to the objectives of the representation. See Rizzo v. Haines, 520 Pa. 484, 555 A.2d 58, 65-66 (1989); Pa. Rule of Prof. Conduct 1.4 and cmt. Defendant does not appear to dispute this but contends that plaintiff's claims are barred by the rule announced in Muhammad v. Strassburger, McKenna, Messer, Shilobod and Gutnick, 526 Pa. 541, 587 A.2d 1346, cert. denied, 502 U.S. 867, 116 L. Ed. 2d 156, 112 S. Ct. 196 (1991). The Court in that case held that in the absence of fraud, a client may not sue his attorney for malpractice in the negotiation of a settlement agreement to which the client assented but with which he became dissatisfied. 587 A.2d at 1351.


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