165761_52_01.Pdf

Michigan Supreme Court

Lansing, Michigan Syllabus

Chief Justice: Justices: Elizabeth T. Clement Brian K. Zahra

David F. Viviano Richard H. Bernstein Megan K. Cavanagh Elizabeth M. Welch Kyra H. Bolden

This syllabus constitutes no part of the opinion of the Court but has been Reporter of Decisions: prepared by the Reporter of Decisions for the convenience of the reader. Kathryn L. Loomis

HARK ORCHIDS, LP v BUIE

Docket No. 165761. Argued on application for leave to appeal October 9, 2024. Decided December 30, 2024.

Hark Orchids, LP (plaintiff) filed an action in the Kalamazoo Circuit Court against its former attorney and law firm, William Buie and Conklin Benham, PC (defendants), asserting that defendants committed legal malpractice in their prior representation of plaintiff. In 2015, defendants represented plaintiff in a workers’ compensation lawsuit brought against plaintiff by a former employee. During the litigation, the former employee informed defendants that in addition to the workers’ compensation claim, she had other claims against plaintiff. The former employee offered a global settlement for all her claims for $125,000. Defendants did not notify or inform plaintiff of the offer. Instead, defendants settled just the workers’ compensation claim for $35,823.84. After that lawsuit was settled, the former employee brought another suit against plaintiff, asserting claims of retaliation in response to the workers’ compensation claim, racial discrimination, and intentional infliction of emotional stress. Plaintiff alleged in its malpractice case that those claims would have been considered in negotiations and released by the former employee if plaintiff had known about the claims and settlement offer. Because those claims were not settled, plaintiff was required to defend against the former employee’s second suit, which entailed significant pretrial motion practice. It was during the second lawsuit that plaintiff discovered that the former employee had previously offered to settle her remaining claims. In the former employee’s second lawsuit, the trial court granted summary disposition in favor of plaintiff, the Court of Appeals affirmed that decision, and the Supreme Court denied the former employee’s application for leave to appeal. Plaintiff asserted in this case that defendants committed malpractice by failing to inform it of the global settlement offer and that, as a result of the malpractice, plaintiff incurred more than $300,000 in additional attorney fees that would have been unnecessary had defendants performed to the applicable standard of care. Defendants moved for summary disposition. The court, Alexander C. Lipsey, J., granted defendants summary disposition, reasoning that plaintiff could not recover attorney fees as damages under the American rule. Plaintiff appealed. In an unpublished per curiam opinion issued on May 4, 2023 (Docket No. 361175), the Court of Appeals, REDFORD and YATES, JJ. (SHAPIRO, P.J., concurring), affirmed the trial court’s order, reasoning that because the American rule controlled plaintiff’s request for relief, attorney fees could not be awarded. In his concurring opinion, Judge SHAPIRO agreed that the result was mandated by Mieras v DeBona, 204 Mich App 703 (1994), rev’d on other grounds 452 Mich 278 (1996), but questioned whether that rule should control given the wide acceptance of such damages in other states. The Supreme Court ordered and heard oral argument on whether to grant plaintiff’s application for leave to appeal or take other action. 513 Mich 949 (2023).

In a unanimous opinion by Justice ZAHRA, the Supreme Court, in lieu of granting leave to appeal, held:

Parties must generally bear the costs associated with advancing or defending legal claims through the hiring of attorneys. In that regard, the general American rule provides that attorney fees and costs are ordinarily not recoverable unless a statute, court rule, or common-law exception allows it. However, permitting aggrieved clients to recover attorney fees that are caused by legal malpractice and are reasonably and necessarily incurred to mitigate the harm arising from the malpractice is consistent with the nature of malpractice relief, which seeks to make the client whole. To be made whole, a client asserting legal malpractice may recoup payments for added legal services the client would not have incurred had the attorney provided adequate legal services. Without this compensation, clients will often be left without a remedy and full compensation for the professional wrongs done by their attorneys. Barring the recovery of attorney fees incurred in mitigation would also undermine and create internal conflict with basic mitigation rules, force clients to bear the burden of unnecessary attorney fees, and promote increased malpractice litigation to compensate for larger adverse judgments. There are three categories of fees implicated in legal malpractice actions: (1) the “initial fees” a plaintiff pays or agrees to pay an attorney for legal services that were negligently performed, (2) the “corrective fees” incurred by the plaintiff for work performed to correct the problem caused by the negligent attorney, and (3) the “litigation fees” incurred by the plaintiff to prosecute the malpractice action against the offending attorney. While the initial and corrective fees are recoverable in legal malpractice suits to make the client whole, the litigation fees incurred in the malpractice suit itself are barred under the American rule. The American rule for the assessment of legal fees stemming from litigation prohibits plaintiffs from recovering attorney fees incurred in the suit brought to recover damages. But the American rule does not prohibit the recovery of legal fees that are damages resulting from the underlying legal malpractice. When an attorney takes on the representation of a client and performs negligently, the client is entitled to recover the added costs of hiring other professionals to provide legal services and correct the resulting harm. Accordingly, attorney fees accrued in mitigating damages caused by legal malpractice are recoverable in an action for legal malpractice. In this case, plaintiff incurred significant additional legal fees in defending litigation against its former employee that would not have existed but for defendants’ alleged malpractice. Plaintiff sufficiently pleaded the damages element of its claim—i.e., the attorney fees reasonably incurred to mitigate defendants’ alleged malpractice. The Court of Appeals therefore erred when it affirmed the trial court’s grant of summary disposition in favor of defendants.

Reversed and remanded to the trial court.

Michigan Supreme Court

Lansing, Michigan OPINION

Chief Justice: Justices: Elizabeth T. Clement Brian K. Zahra

David F. Viviano Richard H. Bernstein Megan K. Cavanagh Elizabeth M. Welch Kyra H. Bolden

FILED December 30, 2024

STATE OF MICHIGAN

SUPREME COURT

HARK ORCHIDS, LP,

Plaintiff-Appellant, v No. 165761 WILLIAM BUIE and CONKLIN BENHAM, PC,

Defendants-Appellees.

BEFORE THE ENTIRE BENCH ZAHRA, J.

Plaintiff Hark Orchids, LP, alleges that it incurred significant attorney fees to correct mistakes and mitigate damage resulting from legal malpractice committed by its attorneys, defendants William Buie and Conklin Benham, PC. Defendants represented plaintiff in a workers’ compensation suit. Plaintiff alleges that defendants failed to inform plaintiff of other possible employment-related claims and of a global settlement offer that would have resolved the other claims in addition to the workers’ compensation claim. Plaintiff claims that these failures constitute legal malpractice. Because it was not informed of the offer, plaintiff alleges it was required to defend an additional, separate lawsuit by its former employee, requiring plaintiff to pay attorney fees that it otherwise would not have incurred.

Defendants moved for summary disposition, arguing that, under the “American rule” for the assessment of attorney fees arising out of litigation, parties generally cannot recover attorney fees from an opposing litigant absent express authorization, even in the context of legal malpractice suits. 1 The trial court concluded that plaintiff failed to state a claim under MCR 2.116(C)(8), and the Court of Appeals affirmed that decision on the same grounds. 2

Contrary to the conclusions of the courts below, the American rule does not bar plaintiff’s claim for damages. The American rule generally requires parties to shoulder the cost of hiring their own attorneys to assert their legal positions, claims, and defenses. But that principle is not implicated in the context of negligent performance of legal services. Legal malpractice claims, by their very nature, implicate the provision of professional legal advice to clients. Plaintiffs in legal malpractice suits seek compensation to place them in the same position as if they had received legal services meeting the appropriate standard of care. Legal malpractice can cause clients to incur costs that would have been unnecessary absent the malpractice. A client who suffers legal malpractice may be required to retain counsel to address mistakes and harms caused by the negligent attorney and to take steps to mitigate the resulting damage. We hold that a client who suffers legal malpractice can recover reasonable and necessary attorney fees that are incurred to correct harms caused by the malpractice. The American rule for the assessment of legal fees stemming from litigation prohibits plaintiffs from recovering attorney fees incurred in the suit brought to recover damages. But the American rule does not prohibit the recovery of legal fees that are damages resulting from the underlying legal malpractice.

Because plaintiff sufficiently pleaded the damages element of its claim, specifically in the form of attorney fees reasonably incurred to mitigate defendants’ alleged malpractice, the judgment of the Court of Appeals is reversed. We remand this matter to the trial court for further proceedings.

I. FACTS AND PROCEDURAL HISTORY When considering a motion for summary disposition for failure to state a claim, a court must accept as true the allegations in the plaintiff’s complaint. 3 The following facts are recited pursuant to this standard.

In 2015, a former employee of plaintiff brought suit against plaintiff, alleging claims for workers’ compensation relief. 4 Plaintiff’s workers’ compensation insurance carrier hired defendants to represent plaintiff in the suit. Plaintiff, defendants, and the former employee engaged in discovery and settlement negotiations. During the course of the litigation, the former employee indicated to defendants that she believed she had additional meritorious claims against plaintiff in addition to the workers’ compensation claim, including claims based on discrimination and retaliatory discharge. She offered a global settlement for all of her claims, including both the workers’ compensation and separate claims, for $125,000.

Defendants failed to notify or inform plaintiff of the proposed offer from the former employee. Defendants also did not convey or provide a copy of the offer in written form to plaintiff. Instead, defendants settled only the workers’ compensation claim for the amount of $35,823.84, and the litigation concerning workers’ compensation concluded. After this settlement, the former employee sued to recover damages under additional theories of relief, which included retaliation in response to a workers’ compensation claim, 5 racial discrimination, 6 and intentional infliction of emotional distress.

Because these claims were not settled, however, plaintiff defended against the former employee’s second suit and engaged in detailed pretrial motion practice. During the course of the second suit, plaintiff discovered that the former employee had previously offered to settle all remaining claims but that defendants had failed to inform plaintiff of the offer. Ultimately, the trial court in the second case granted summary disposition against the former employee and in favor of plaintiff. 7

In this lawsuit, plaintiff alleges that, without defendants’ inadequate representation and advice, plaintiff would have known about the former employee’s potential additional claims and would have had the opportunity to obtain a negotiated settlement that resolved both the workers’ compensation claim and the separate claims without the need to engage in a second lawsuit. And as a result of this malpractice, plaintiff asserts that it incurred upwards of $312,584.69 in additional attorney fees that would have been unnecessary had defendants performed to the applicable standard of care.

Defendants moved for summary disposition under MCR 2.116(C)(8) for failure to state a claim, which the trial court granted. The court reasoned that plaintiff could recover the additional attorney fees as damages under the American rule only if defendants had committed deceptive or malicious action. 8 Because the only damages alleged by plaintiff were derived from the payment of attorney fees incurred to mitigate the damage caused by the malpractice, the court found that no damages were recoverable.

Plaintiff appealed that decision in the Court of Appeals, which affirmed the trial court’s order granting defendants summary disposition. Largely reiterating the position of the trial court, the Court of Appeals concluded that the American rule applied to plaintiff’s request for relief and that therefore attorney fees could not be awarded absent allegations that defendants’ conduct was malicious, fraudulent, or similarly wrongful. 9 Because plaintiff alleged only that defendants were negligent, the trial court did not err by granting summary disposition for defendants. 10 Judge SHAPIRO concurred, explaining that affirmance of the trial court was mandated by Court of Appeals precedent under Mieras v DeBona. 11 Judge SHAPIRO nonetheless reasoned that the exclusion of compensation for attorney fees as damages for legal malpractice may not be fully justified, citing the widespread acceptance of such damages around the country. 12

Plaintiff sought leave to appeal, and we ordered and heard oral argument on the application. 13

II. STANDARD OF REVIEW

This Court is asked to review a motion for summary disposition brought under MCR 2.116(C)(8), which “tests the legal sufficiency of the complaint.” 14 Dismissal is warranted if the “opposing party has failed to state a claim on which relief can be granted.” 15 In reviewing the motion, the Court accepts as true all “well-pleaded factual allegations” and construes those allegations “in a light most favorable to the nonmovant.” 16

Questions of law, including the extent and nature of legally permissible damages, are reviewed de novo. 17

III. ANALYSIS

Defendants argue that legal malpractice plaintiffs are barred from recovering attorney fees that were incurred to mitigate the harm of the malpractice underlying the case. We disagree. Attorney fees incurred to correct or limit the damages caused by malpractice are inherent in the underlying injury in malpractice suits. Accordingly, we hold that attorney fees reasonably and necessarily incurred to mitigate the damage of legal malpractice are recoverable in a legal malpractice action.

Every attorney has a duty to provide legal services with basic and “ ‘reasonable skill, care, discretion and judgment in representing a client.’ ” 18 Recognizing the immense ethical importance of meeting foundational professional standards for the legal community, malpractice suits go beyond mere administrative discipline proceedings. Legal malpractice claims provide clients direct relief in court to rectify wrongful acts of their attorneys and

MCR 2.116(C)(8).

Maiden, 461 Mich at 119, citing Wade v Dept of Corrections, 439 Mich 158, 162; 483 16 NW2d 26 (1992). vindicate the right of clients to competent representation. 19 The right to recovery for legal malpractice is a well-established right by which clients are made whole and compensated for attorney misconduct. By incorporating client harm and professional competence, legal malpractice claims implicate both the exchange of specialized services, performed in the context of agreements and commercial payments, and negligence principles requiring conformity with a standard of care.

The elements of a legal malpractice claim are (1) “the existence of an attorney-client relationship; (2) negligence in the legal representation of the plaintiff”; (3) causation; and (4) injury. 20 While attorneys are required to engage in reasonable professional conduct,21 they do so in the context of providing services in a licensed profession and almost always in the context of an agreement or commercial exchange, unlike many other tort contexts. 22 Legal malpractice is a tort that takes on unique qualities and characteristics of professional- services contracts. 23

With this background in mind, it is well-established in legal malpractice jurisprudence that the client must be made whole and placed back in “as good a position as he or she would have been if the attorney had performed competently.” 24 Specifically

See Brownell v Garber, 199 Mich App 519, 525-526; 503 NW2d 81 (1993) (holding that a breach-of-contract action alleging that the attorney had failed to provide services with “ ‘appropriate legal skill’ ” was “duplicative of the malpractice claim,” but contrasting that with a “special agreement” to provide services “above the level required by the standard of care”), quoting Barnard v Dilley, 134 Mich App 375, 378; 350 NW2d 887 (1984), and citing Aldred v O’Hara-Bruce, 184 Mich App 488; 458 NW2d 671 (1990); Mallen, § 8:1 (“Because alternative theories often are based on the same factual allegations as a negligence cause of action, such claims frequently are treated as duplicative and are disregarded.”); see also American Int’l Adjustment Co v Galvin, 86 F3d 1455, 1459 (CA 7, 1996) (“Given that the alleged ‘breach’ complained of is the failure to adhere to the appropriate standard of care, there is no difference between the tort and breach of contract claims. Thus, courts have held repeatedly that legal malpractice claims are governed by tort principles regardless of whether they are brought as a tort, a breach of contract, or both.”); Allied Waste North America v Lewis, King, Krieg & Waldrop, PC, 93 F Supp 3d 835, 851 (MD Tenn, 2015) (“This measure of damages in not unlike that available for a breach of contract action where plaintiff is to be placed as nearly as possible, in the same position he would have been in had the contract been performed[.]”) (quotation marks and citation omitted).

7A CJS, Attorney & Client, § 401, p 464; 7 Am Jur 2d, Attorneys, § 216, pp 307-308 (“Legal-malpractice damages are the difference between the result obtained for the client and the result that would have been obtained with competent counsel.”); Mallen, § 21:8 (“In other words, the measure of damages is the difference between what the plaintiff’s pecuniary position is and what it should have been had the attorney not erred.”); see also, e.g., Sterling Radio Stations, Inc v Weinstine, 328 Ill App 3d 58, 64; 765 NE2d 56 (2002) (“The plaintiff can be in no better position by bringing suit against the attorney than if the underlying action had been successfully prosecuted or defended.”); Saffer v Willoughby, 143 NJ 256, 271; 670 A2d 527 (1996) (“The purpose of a legal malpractice claim is to put a plaintiff in as good a position as he or she would have been had the attorney kept his or her contract.”) (quotation marks, citation, and brackets omitted); Carbone v Tierney, 151 NH 521, 534; 864 A2d 308 (2004) (recognizing “the well-established principle that in a legal malpractice action, a plaintiff is entitled to recover damages for his actual loss, which in the context of litigation malpractice, a successful claimant is able to obtain “the amount of damages recoverable and collectible if [a] suit had been properly prosecuted.” 25

Oftentimes, when a malpractice plaintiff alleges damages in the form of a lost claim or an adverse judgment, the measure of damages requires consideration of whether the client “would have been successful in the underlying suit.” 26 But an adverse court judgment is not always the full extent of the damages to the client. 27 There are numerous circumstances in which an attorney can engage in malpractice, therefore harming the client without changing the ultimate result of a lawsuit. These circumstances include business transactions resulting in unnecessary costs or litigation, as well as cases in which the client was required to engage in additional litigation because of the attorney’s negligent conduct. 28 Such is the case alleged by plaintiff here. is measured by the judgment the plaintiff lost in the underlying action”) (quotation marks and citation omitted).

Permitting aggrieved clients to recover attorney fees that are caused by legal malpractice and are reasonably and necessarily incurred to mitigate the harm of the malpractice is consistent with the nature of malpractice relief—to make the clients whole. This type of damages is widely accepted in legal malpractice jurisprudence. 29 And it is well justified. Legal malpractice involves the exchange and provision of legal services. Unlike other claims and contexts, legal malpractice plaintiffs seek to be made whole for inadequate representation as to legal proceedings, rights, and obligations. Therefore, the full compensation for a failure to provide a reasonable standard of care is recoupment of payments for added legal services the client would not have incurred if the attorney had provided adequate legal services. 30 & Stone, 221 Mich App 602, 637; 563 NW2d 693 (1997) (malpractice suit for negligence in drafting ballot proposal and obtaining bond funding for local government).

Without compensation of attorney fees paid by the client as a result of legal malpractice, clients will often be left without a remedy and full compensation for the professional wrongs done by their attorneys. In many circumstances, clients engage in extended and complex legal proceedings to protect their legal position and to sustain a claim or a defense that was detrimentally affected by their attorney’s malpractice. That is the case here, where if defendant had performed reasonably under the allegations of the complaint, plaintiff could have settled all of its former employee’s claims for around $125,000. As a result of defendants’ alleged negligence, plaintiff claims to have incurred NE2d 316 (2008) (“This court has recognized that a plaintiff in a legal-malpractice case may seek other types of consequential damages, such as additional attorney fees incurred to correct the mistakes of the malpracticing attorney[.]”); Helmbrecht v St Paul Ins Co, 122 Wis 2d 94, 120; 362 NW2d 118 (1985) (“Finally, there was testimony that [the plaintiff] incurred more than $7,500 in attorney’s fees in an attempt to modify the divorce judgment, for which she should also be compensated.”); Akin, Gump, Strauss, Hauer & Field, LLP v Nat’l Dev & Research Corp, 299 SW3d 106, 111 (Tex, 2009) (“We also agree with [the defendant here] that it may recover damages for attorney’s fees it paid to its attorneys in the underlying suit to the extent the fees were proximately caused by the defendant attorneys’ negligence.”); SKMDV Holdings, Inc v Green Jacobson, PC, 494 SW3d 537, 549 (Mo App, 2016) (“The party’s need to hire new counsel, who would have otherwise been unnecessary, and the expenditure of money for the attorney’s fees are some of the damages incurred besides the lost contractual amounts. The attorney remains liable for causing damages associated with the client’s need to take such corrective action.”) (citation omitted); Callahan v Gibson, Dunn & Crutcher LLP, 194 Cal App 4th 557, 582; 125 Cal Rptr 3d 120 (2011) (“Fees paid to a second attorney to correct errors committed by a prior attorney represent damages recoverable in a legal malpractice action.”); Sachs v Downs Rachlin, 206 Vt 157, 172; 2017 VT 100; 179 A3d 182 (2017) (“Under the direct damage theory of attorney’s fees, damages may be recoverable if the client hires another lawyer to correct the consequence of the former lawyer’s negligence.”), citing Ramp v St Paul Fire & Marine Ins Co, 263 La 774; 269 So 2d 239 (1972); Gefre v Davis Wright Tremaine, LLP, 306 P3d 1264, 1281 (Ala, 2013) (“[A] legal malpractice plaintiff may recover as actual damages the attorney fees incurred as a result of the defendant’s malpractice, so long as the plaintiff can demonstrate she would not have incurred the fees in the absence of the defendant’s negligence.”) (quotation marks and citation omitted). hundreds of thousands of dollars in additional legal fees in order to defend litigation that would not have existed if defendants had not committed the malpractice.

If such clients were denied the ability to recover the attorney fees incurred to limit the harm done by their attorneys, they would be detrimentally affected, if not completely denied, relief. Barring recovery of legal fees also risks creating a perverse incentive in which clients could obtain greater damages awards if the client’s position is made worse because of the underlying malpractice. Clients should not be placed in a position of being denied access to a recovery simply because they were successful at preventing greater harm. While clients may be able to recover damages against their former attorney for an adverse judgment, those same clients may be left with potentially no relief if they successfully prevented that result through the use of third-party attorneys. There is no indication that this perverse result is mandated by principles of legal malpractice law, which seek to make all clients whole for their injuries rather than favor certain litigation results and forms of injury.

This is all the more significant because parties injured by a tortfeasor are mandated to take reasonable steps to mitigate their harm. 31 Parties injured by legal malpractice risk having their entire claims foreclosed if attorney-fee damages are the only damages incurred by the client. That is, the law would mandate mitigation while at the same time precluding relief if the injured client’s mitigation efforts are successful. The historical understanding and basic principles of legal malpractice do not disfavor clients who are more successful at preserving their legal positions, limiting harm, and preventing additional reliance on malpractice litigation. Instead, malpractice plaintiffs must be placed in the same position they would have been if the reasonable legal services they were promised were effectively provided. Barring the recovery of attorney fees incurred in mitigation undermines and creates internal conflict with basic mitigation rules, forces clients to bear the burden of costs of unnecessary attorney fees, and promotes increased malpractice litigation to compensate for larger adverse judgments.

Permitting the recovery of attorney fees incurred as a result of legal malpractice is not inconsistent with the American rule for awarding attorney fees. “Under the general ‘American rule,’ attorney fees and costs are ordinarily not recoverable unless a statute, court rule, or common-law exception so allows.” 32 In light of this American tradition, parties themselves must generally bear the costs of advancing or defending legal claims through the procurement of attorneys. But in the context of legal malpractice litigation, the attorney fees sought to be recovered are not those incurred to procure counsel to advance the legal malpractice claim. Instead, the legal fees sought to be recovered are Malpractice (3d ed), § 17.15, pp 58-59; 7 Am Jur 2d, Attorneys at Law, § 216, p 309 (“Mitigation of damages is not a complete bar to recovery for legal malpractice, but rather affects the measure of damages that is recoverable.”). actual damages resulting from the malpractice. Legal malpractice claims are definitionally based upon the provision of legal services in a competent manner, which a client is entitled to receive as a matter of law. To replace and make whole the injury of inadequate legal services, it is necessary to permit an injured client to recover attorney fees that were otherwise unnecessary absent malpractice.

As legal malpractice jurisprudence has widely recognized, attorney fees to mitigate harm are direct damages that are inherent in the legal malpractice injury. They do not arise through the assertion of separately identifiable legal claims or defenses distinct from the harm of malpractice. While the American rule generally governs the availability of fee- shifting in the resolution of standard legal disputes, it is simply not implicated in the context of recovery for legal malpractice damages.

Of the cases cited by the Court of Appeals here, only one concerned legal malpractice, and none addressed the fundamental nature of malpractice damages, which are directly applicable to the provision of professional legal services. 33 Specifically, the Court of Appeals relied on Mieras v DeBona, 34 which rejected a request for attorney fees incurred in an underlying dispute as a result of malpractice. The Mieras panel’s reasoning was scant, but it stated that, although the American rule generally bars recovery of attorney fees, a party may recover them as damages incurred in litigating a lawsuit caused by a third party’s wrongdoing. 35 The Mieras panel continued, explaining that this exception— sometimes called the prior-litigation exception—does not apply if a tortfeasor was merely negligent rather than guilty of malicious or fraudulent conduct. 36 For this proposition, however, the Mieras panel cited no legal malpractice authority, only general American- rule authority that applied the prior-litigation exception. 37

This Court reversed the Court of Appeals’ decision in Mieras, concluding that the attorney at issue did not violate a duty subjecting the attorney to liability. 38 At that time, this Court was not required to address the issue of attorney fees as damages. While this Court has never addressed this issue directly, as explained in this opinion, legal malpractice principles permitting the recovery of attorney fees in mitigation do not conflict with or implicate the American rule, contrary to the conclusion of the Court of Appeals. Nor does our holding today rely on the prior-litigation exception, as we are holding more broadly that attorney fees accrued in mitigating damages caused by legal malpractice are recoverable in an action for legal malpractice.

Notably, the result in this case is by no means unusual in the context of malpractice generally. When a doctor commits medical malpractice, the patient is entitled to recover the costs of hiring another medical professional to mitigate the harm and repair the injuries caused by the malpractice. 39 The same is true for negligence actions involving engineers, accountants, professional home construction contractors, and others. 40 In the same light, when an attorney takes on the representation of a client and performs negligently, the client is entitled to recover the added costs of hiring other professionals to provide legal services and correct the resulting harm.

The distinction between legal malpractice damages and the American rule is further shown in the recovery of attorney fees in the malpractice suit itself. We are persuaded by the analysis in John Kohl & Co, PC v Dearborn & Ewing, 41 where the Tennessee Supreme Court laid out three distinct categories of fees implicated in malpractice actions:

(1) “initial fees” a plaintiff pays or agrees to pay an attorney for legal services that were negligently performed, (2) “corrective fees” incurred by the plaintiff for work performed to correct the problem caused by the negligent lawyer, and (3) “litigation fees,” which are legal fees paid by the plaintiff to prosecute the malpractice action against the offending lawyer.

“Initial” and “corrective” fees incurred as damages in malpractice and “litigation” fees incurred in the course of prosecuting the malpractice claim require different treatment. While the initial and corrective fees are recoverable in legal malpractice suits to make the client whole, the litigation fees incurred in the malpractice suit itself are barred under the American rule. 42 As explained by the John Kohl court, legal malpractice claims are not “an exception to the rule” and, therefore, attorney fees in legal malpractice suits are not generally recoverable. 43 These principles vindicate traditional understandings of legal malpractice injury while also respecting the American rule under which litigants pay their own way to advance their rights in court. 44

Injured clients could take on additional attorney fees to mitigate the harms of malpractice, as allegedly occurred here. And of course, as a result of the attorney-client relationship, the attorney can sue the client for failing to compensate the attorney. 45 If an attorney can bring suit to recover damages from the client’s violation of the attorney- the malpractice); Akin, Gump, 299 SW3d at 121 (“The situation before us does not involve the American Rule that prevails in Texas. [The defendant] does not seek to recover attorney’s fees for prosecuting its malpractice suit against [the plaintiff]. It seeks damages measured by the economic harm it suffered from [the plaintiff’s] breach of its duty of care in prosecuting the Panda suit.”). services agreement, clients cannot be prohibited from similarly recovering the additional costs of hiring an attorney to mitigate harm caused by malpractice. 46

Finally, in applying diverse categories of legal malpractice claims, the ultimate principle remains that damages should place the client in the same position in which the client would have been in the underlying suit if no malpractice had occurred, whether those costs take the form of attorney fees for other attorneys or the same attorney. However, “[u]sually, the fees paid to the defendant-attorney bear no relation to the loss of the client,” i.e., the client does not incur additional costs by paying the negligent attorney more than would have otherwise been paid. 47 The same goes for payments to third-party attorneys. If the costs of attorney fees would have been the same or more if the claim were successfully prosecuted, damages in fees will not return the client to the same position as would exist without malpractice. As a court in Illinois convincingly explained, “to allow a plaintiff to recover attorney fees she would have incurred even in the absence of the defendant’s negligence would place the plaintiff in a position better than that she would have occupied had the defendant not been negligent.” 48 Such fees beyond the actual injury experienced by the client are not recoverable in a legal malpractice suit.

Furthermore, the client cannot recover any and all fees that the client incurred in attempted mitigation. Attorney fees subject to recovery must be reasonable and necessary to mitigate the harm from malpractice. 49 This basic limitation guards against excessive awards and prevents malpractice litigation from becoming a vehicle by which attorneys and their clients pass on unreasonable fees and rates to third parties. In calculating reasonable attorney fees, litigants must follow recognized procedures and standards. 50

In their motion for summary disposition, defendants claimed that the American rule prevented plaintiff from recovering attorney fees incurred as a result of legal malpractice.51 Given our conclusion today, that position is incorrect. Plaintiff’s claim for damages does not implicate the American rule. Plaintiff adequately alleged in its complaint that, because of defendants’ alleged malpractice, it was unable to obtain a global settlement agreement that would have released and terminated all claims brought by plaintiff’s former employee against plaintiff. Plaintiff contends that, as a result of this negligence, it was forced to participate in a separate lawsuit from the former employee, for which it incurred additional attorney fees. If, in subsequent proceedings, plaintiff can prove malpractice and reasonable attorney fees incurred to mitigate the injury caused by the malpractice, it can recover such fees as damages.

IV. CONCLUSION

Contrary to the conclusion of the Court of Appeals, plaintiff’s complaint alleges cognizable damages. Legal malpractice claims, by their very nature, seek compensation to place the client in the same position they would have been absent the provision of negligent legal services. In order to make clients whole for the damages imposed on them due to malpractice, legal malpractice plaintiffs can recover from malpractice defendants the factors set forth in Smith, 481 Mich 517 (opinion by TAYLOR, C.J.), and Pirgu v United Servs Auto Ass’n, 499 Mich 269; 884 NW2d 257 (2016). reasonable attorney fees incurred to correct harms caused by the defendants’ inadequate services. Given the inherent nature of a client’s direct damages from malpractice, this recovery of attorney fees does not implicate the American rule.

Because plaintiff sufficiently pleaded the damages element of its claim, specifically in the form of attorney fees reasonably incurred to mitigate defendants’ alleged malpractice, the judgment of the Court of Appeals is reversed. The case is remanded to the trial court for further proceedings.

Brian K. Zahra Elizabeth T. Clement David F. Viviano Richard H. Bernstein Megan K. Cavanagh Elizabeth M. Welch Kyra H. Bolden