Guilt no bar to contract claim

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The Seventh Circuit held on Jan. 7 that the "actual innocence" rule does not bar a guilty criminal defendant from suing his attorney for breach of contract.

Hilary Winniczek was charged with a variety of federal criminal offenses arising from his participation in a scheme to help people obtain commercial drivers’ licenses fraudulently. He hired a lawyer named Petro to represent him.

Attorney Sheldon B. Nagelberg advised Winniczek and his wife, Danuta, that Petro was inexperienced in federal criminal matters and they should fire Petro and hire him. The Winniceks did so.

Upon Nagelberg’s representation that Winniczek had a good defense to the criminal charges, they paid him $170,000 over the course of a year. As soon as Nagelberg was fully paid, he told the Winniczeks that he wouldn’t take the case to trial because Winniczek had made statements to the authorities when he was represented by Petro that scotched any defense he might have had, and as a result Winniczek had no choice but to plead guilty.

Winniczek hired another attorney, pleaded guilty, and was sentenced to 22 months in prison.

The Winniczeks then sued Nagelberg in Illinois federal court, alleging breach of contract, legal malpractice, and breach of fiduciary duty. The district court dismissed the claim, pursuant to the "actual innocence" rule, and the Winniczeks appealed.

The Seventh Circuit affirmed the dismissal of the malpractice claim, but reversed the dismissal of the contract claim, in a decision by Judge Richard Posner.

Under the rule, a criminal defendant cannot bring a suit for malpractice against his attorney merely upon proof that the attorney failed to meet minimum standards of professional competence and that, had he done so, the defendant would have been acquitted on some technicality; the defendant (the malpractice plaintiff) must also prove that he was actually innocent of the crime.

In civil cases, the malpractice plaintiff need only prove he was injured by the attorney’s negligence. It is irrelevant that the negligence had consisted in failing to make a purely technical argument.

The court explained the purpose of the rule as follows: "the scope for collateral attacks on judgments is broader in criminal than in civil matters. A criminal defendant can establish ineffective assistance of counsel, the counterpart to malpractice, and thus get his conviction vacated, by proving that had it not been for his lawyer’s failure to come up to minimum professional standards, he would have been acquitted. He can do this even if, as in a case in which his only defense was that illegally seized evidence had been used against him, the ground for acquittal would have been unrelated to innocence. Since a criminal defendant thus has a good remedy for his lawyer’s malpractice — namely to get his conviction voided — he has less need for a damages remedy than the loser of a civil lawsuit, who would have no chance of getting the judgment in the suit set aside just because his lawyer had booted a good claim or defense (cites omitted)."

The court concluded that the reasoning behind the rule does not extend to a case in which the plaintiff claims that he was overcharged, rather than that he lost his case because of the lawyer’s negligence, noting, "The fact that one of the plaintiffs, namely Mrs. Winniczek, wasn’t even charged with a crime merely underscores the district court’s error. She is seeking restitution of money obtained from her by false pretenses or breach of an implied contract. But so is Winniczek, in count one of the complaint, which is for breach of contract (cites omitted)."

To illustrate, the court proposed a hypothetical, in which an attorney charged a criminal defendant $50,000, plus $25,000 in expenses, did a "superb though ultimate unsuccessful job," but incurred only $5,000 in expenses, and refused to refund the $20,000 balance."

The court concluded, "There would be no malpractice, in the sense of incompetent representation — and there would be nothing in the thinking behind the actual-innocence rule to suggest that Winniczek should not be allowed to enforce his contract just because he had been convicted."

The court also noted that the few courts that have previously addressed this issue have held that the rule does not bar a contract claim. Bird, Marella, Boxer & Wolpert v. Superior Court, 130 Cal. Rptr. 2d 782 (App. 2003); Van Polen v. Wisch, 23 S.W.3d 510, 516 (Tex.App. 2000); Labovitz v. Feinberg, supra, 713 N.E.2d at 385.

Quoting the court in Bird, the court iterated, "a fee dispute between a convicted criminal defendant client and his former counsel does not entail the policy considerations which arise from a malpractice suit. The client does not seek to shift the punishment for his criminal acts to his former counsel nor is the client’s own criminal act the ‘ultimate source of his predicament’ as evidenced by the fact a client acquitted of the criminal charges against him could have suffered the same unlawful billing practices. … Furthermore a fee dispute between client and counsel does not give rise to the practical problems and pragmatic difficulties inherent in a malpractice action brought by a convicted criminal defendant client. … [T]here is no difficulty in quantifying damages for a wrongful conviction or a longer prison sentence and there is no problem of applying a standard of proof within a standard of proof. A judgment for the client in a fee dispute is not inconsistent with a judgment for the People in the criminal case. And, there is no duplication of effort since a fee dispute obviously cannot be resolved through postconviction relief."

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Turning to the allegations in the complaint, the court then rejected Nagelberg’s argument that it only alleged malpractice.

The court acknowledged, "It is true that the narrative portion of count one accuses Nagelberg not only of overcharging and of charging for services not rendered but also of being careless, for example in failing to read the statements by Winniczek to the authorities that showed he had no defense."

Nevertheless, the court concluded, "the fact that a breach of contract is negligent rather than willful does not change the character of the breach. Sometimes a contract is broken willfully, sometimes unavoidably (circumstances beyond the promisor’s control, but not rising to the level at which he would have a defense of impossibility or force majeure, might have prevented him from fulfilling his promise), and sometimes carelessly (the promisor should have realized he couldn’t fulfill his promise — that he had bitten off more than he could chew). Since liability for breach of contract is, in general, strict liability, the cause, character, and mental element of the breach usually are immaterial (cites omitted)."

Accordingly, the court held that the contract claim could proceed, with damages limited to the recovery of the overcharge, and reversed that portion of the district court’s dismissal.

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David Ziemer can be reached by email.