Deal or No Deal: But-For Causation in Transactional Legal-Malpractice Cases

Deal or No Deal: But-For Causation in Transactional Legal-Malpractice Cases

By: Collins Einhorn Farrell

Under Michigan law, the (former) client in a legal-malpractice action must prove that the attorney actually caused her injury. That means the client must prove that she would’ve achieved a better result “but for” the attorney’s alleged malpractice. The concept of but-for causation is most prevalent in the context of litigation, where the attorney’s alleged malpractice results in dismissal of the underlying case. But the concept is equally applicable in transactional-malpractice cases.

Applying this rule in the transactional context, Michigan courts have historically rejected legal-malpractice claims when the client can’t establish that she would’ve received a better deal but for her attorney’s alleged errors. The Michigan Court of Appeals’ recent unpublished opinion in Twice Baked, LLC v. Attorney (February 26, 2019) illustrates this rule. Collins Einhorn represented the attorney and law firm in Twice Baked.

Twice Baked provided gourmet “Just Baked” cupcakes to licensees who sold the cupcakes in stores. It hired the law firm to negotiate the sale of its assets to a third party. It directed the law firm to include an “exclusive supplier” provision in the purchase agreement, which would’ve obligated existing Just Baked licensees to continue buying cupcakes exclusively from Twice Baked.

The purchase agreement didn’t include the exclusive-supplier provision that Twice Baked had requested. And Twice Baked licensees stopped buying cupcakes from Twice Baked after the transaction closed.

Twice Baked claimed that the law firm’s failure to include the exclusive-supplier provision in the purchase agreement amounted to malpractice. The law firm filed a motion for summary disposition, arguing that neither the purchaser nor the licensees would’ve agreed to the exclusive-supplier provision, even if one had been requested. The law firm supported that argument with affidavits in which the purchaser and one of the licensees confirmed that they never would’ve agreed to the exclusive-supplier provision. Twice Baked didn’t offer any evidence to refute the affidavits.

The trial court dismissed Twice Baked’s claim for lack of causation. The Court of Appeals affirmed, holding that Twice Baked presented no evidence from which a jury could conclude that, but for the law firm’s conduct, Twice Baked’s injuries wouldn’t have occurred.

What this case means for Michigan transactional attorneys

Twice Baked reaffirms the principle that the client in a transactional-malpractice case must prove that the underlying transaction would’ve been more favorable to the client but for the alleged malpractice. When the client’s legal-malpractice theory hinges on missing contractual language, the client must submit evidence that the other contracting parties would’ve agreed to that provision—a high bar to meet.

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