Judge Sheppard of the Philadelphia Court of Common Pleas (commerce court division) had opportunity to pen this clear, concise opinion explaining when a litigant may claim legal malpractice for entering into an unfavorable settlement:

Nixon Peabody relies upon the case of Muhammad v. Strassburger, in support of its claim that the Rubins should not be able to bring suit. In Muhammad, plaintiffs in a medical malpractice action agreed to accept a monetary settlement from defendants in exchange for dismissing their lawsuit. After they agreed to the settlement, plaintiffs changed their minds and decided that the settlement amount was insufficient. Plaintiffs sued their attorneys for legal malpractice because plaintiffs were dissatisfied with the monetary settlement. The Pennsylvania Supreme Court held that a client cannot sue his attorney for legal malpractice when the client is simply dissatisfied with the terms of the settlement, unless the client can show that he was fraudulently induced to enter into that settlement.

This holding was later narrowed in McMahon v. Shea. In McMahon, the court noted that Muhammad was based on Pennsylvania’s public policy of encouraging the settlement of disputes and preventing "Monday morning quarterback suits."  In limiting Muhammad to the specific facts of that case, the McMahon court concluded that the plaintiffs allegations that his attorney failed to advise him of a contract’s controlling law constituted grounds for a permissible claim for negligence. McMahon limited Muhammad to cases involving similar facts.

In Banks v. Jerome Taylor & Associates, the Superior Court reconciled the Muhammad and McMahon decision as follows:

"In cases wherein a dissatisfied litigant merely wishes to second-guess his or her decision to settle due to speculation that he or she may have been able to secure a larger amount of money, i.e. ‘get a better deal’ the Muhammad rule applies so as to bar that litigant from suing his counsel for negligence. If, however, a settlement agreement is legally deficient or if an attorney fails to explain the effect of a legal document, the client may seek redress from counsel by filing a malpractice action sounding in negligence." 

In the case at bar, the allegations are more similar to the facts in McMahon than in Muhammad. The Rubins alleges that Nixon Peabody, early in its representation of plaintiffs, failed to file one of the claims sought to be prosecuted by plaintiffs within the applicable statute of limitations. Plaintiffs further allege that Nixon Peabody continued to prosecute the claims in the Kentucky federal court suit and caused plaintiffs to expend one million dollars in litigation expenses. Plaintiffs allege that if Nixon Peabody had been honest and forthcoming during the Kentucky representation and Nixon Peabody would have explained to plaintiffs that the statute of limitations had expired on this claim and explained the shortcomings, plaintiffs would have made a decision as to whether they should continue with the claim. Unlike the plaintiffs in Muhammad, the Rubins did not change their minds about the settlement. Rather, they complain about Nixon Peabody’s failure to advise them regarding the controlling law applicable to Rubin’s claim, i.e. application of the statute of limitations and its ramifications.

Jan Rubin Assocs. v. Nixon Peabody, LLP, 2008 Phila. Ct. Com. Pl. LEXIS 175 (July 31, 2008).

Simple and direct. I’d go a bit farther than the Court (since I’m allowed to) and rephrase the rule as: a plaintiff can claim the fact of settlement at that amount was caused by malpractice, but cannot claim the amount of settlement itself was malpractice. 

The former is where, due to the malpractice of client, an unfavorable settlement was either necessary or an appropriate mitigation of damages. The latter is where the client willingly enters into an unfavorable settlement, into which they later claim the lawyer should have advised them not to enter.