The Superior Court recently ruled that a plaintiff in a legal malpractice action seeking recovery for damages resulting from his loss of corporate stock may introduce at trial expert testimony concerning the valuation of that stock, based on the price for which the shares were sold five years after the alleged malpractice.
In Jernigan v. Cooley LLP, 2023 WL 4456954 (Mass. Super. June 27, 2023), plaintiff Finith Jernigan claimed that defendant Cooley LLP represented him in forming companies in 2016 to capitalize on technology he developed, but that he lost possession of the stock in the new companies as a result of Cooley’s advice and alleged conflict of interest. The shares at issue were not publicly traded; however, they were sold by others in 2021 at a considerable profit in an arm's length transaction.
The matter before the Court involved motions in limine by both parties; each seeking to exclude testimony of the other’s damages expert valuing the lost shares. Cooley sought to introduce expert evidence that the stock must be valued based on circumstances in 2016, the date of Cooley’s alleged breach, or later in 2018, at the moment they were lost. Jernigan, on the other hand, sought to introduce evidence that the shares must be valued based, at least in part, on the 2021 transaction. The Court denied both parties’ motions to exclude the other’s expert valuation testimony, leaving the issue of share valuation, and thus Jernigan’s damages, to the jury.
A legal malpractice plaintiff is only entitled to recover losses occasioned by negligence which were reasonably foreseeable at the time of the negligence. See for example Fishman v. Brooks, 396 Mass. 643, 647 (1986) holding that “[a]n attorney [whose] duty [to exercise the degree of care and skill of the average qualified practitioner] is liable to his client for any reasonably foreseeable loss caused by his negligence.” The Court explained that where negligence leads to loss of freely traded shares of stock, the loss can easily be valued based on the fair market value of the shares at the moment of loss due to the plaintiff’s ability to purchase shares on the open market at the market price. Where, as in Jernigan, the lost stock is not freely traded, the damages may be derived not only from the value of the shares at the time of the alleged negligence, but also based upon future increases in value. The Court reasoned that a plaintiff who lost non-publicly traded shares will have not only lost the present value of the shares at the time of the alleged malpractice, but also the opportunity to hold the shares based on his expectancy of greater value.
Whether the jury ultimately credits Jernigan’s expert testimony based on his theory of share value, and thus calculates Jernigan’s damages based in part on the 2021 sale, is a question only the jury can answer. The Court made clear that no expert can determine that a plaintiff’s damages must be valued on a particular date, as the issue is determined by law, on which only the judge can instruct jurors. The trial is scheduled for early January 2024.
The implications of Jernigan may expand beyond the value of stock that is not publicly traded. The same reasoning could potentially apply to other assets that cannot be freely bought or sold without delay. For example, where malpractice causes the loss of real property or a unique chattel such as artwork, similar reasoning may apply. Legal malpractice practitioners and insurers should keep these principles in mind when evaluating potential liability.
Given that the implications of Jernigan may expand beyond the value of stock that is not publicly traded, what should legal malpractice practitioners and insurers keep in mind when evaluating potential liability?