The case-within-a-case is the underlying matter that was mishandled, and essentially is the damages portion of the malpractice case. To show damage where the underlying matter was a claim or lawsuit, the plaintiff must demonstrate what he or she would have recovered had the matter been handled non-negligently. This usually requires the plaintiff to present the underlying case within the malpractice case. Some commentary regarding how this is done is presented here: How do I establish damages in a legal malpractice trial?
One interesting facet of presenting the case-within-a-case is the potentially significant difference between a malpractice case in which the underlying case was never tried, on the one hand, and a malpractice case in which the underlying case went to trial but was handled negligently, on the other.
Consider a case that went to trial but the attorney failed to introduce certain critical evidence that would have been available (an important witness who would have corroborated the plaintiff on a critical issue), and failed to make important arguments, and the case was lost. In the subsequent malpractice case, a transcript of the trial record is allowed into evidence to show what happened at the earlier trial. The plaintiff in the malpractice case also presents the missing evidence and arguments that it maintains should have been presented in the first instance, and argues that it made a difference. These could be third party witnesses, documents, expert testimony, or all of the above.
This "retrial" of the underlying case, using the transcript of proceedings, supplemented by the "missing" evidence and arguments, must be limited to only those errors that were the alleged consequence of the attorney’s negligence. The only evidence that should be added to or deleted from the original trial is that which should be attributed to the attorney’s negligence. Legal Malpractice, Mallen & Smith, 2008 Ed., Sec 34.12, pg 1104; Cook v Continental Gas Co., 180 Wis.2d 237, 509 NW 2nd 100 (Ct App 1993); Morris v Getscher, 708 F.2d 1306 (8th Cir 1983). The defense is not allowed to present defenses to the underlying claim that were not presented in the earlier trial, unless introduction of the missing evidence in the malpractice trial opens the door to such defenses in a way that the rest of the evidence did not.
In the example above, let’s further suppose that the underlying case was for breach of contract, that the plaintiff and underlying defendant disagreed there was a breach, and while the damages for the alleged breach could have been disputed, the defendant had made a tactical decision that it was not worth the substantial extra effort and distraction to contest the amount of damages. So suppose plaintiff and defendant stipulated in the underling case that damages would be $2,175,312. Thus, in this example, the underlying case was all about whether there was a breach of contract, not how much that alleged breach damaged the client.
The defendant in the malpractice case does not get to litigate the question of damages for breach of contract should it disagree with the tactical decision made by the underlying defendant. The malpractice defendant is stuck with the stipulation because it was part and parcel of the underlying trial, and because to hold otherwise would violate the rule described above.
The purpose of this rule appears to be two-fold. First, as a matter of pure causation analysis, the question is what effect would the missing evidence have had in the actual underlying trial, not in an environment in which a host of unrelated hypothetical defenses were asserted and litigated by more imaginative defense counsel. Second, as a matter of public policy, the rule contains and restricts the issues for trial. A contrary rule would allow the defense to present a panoply of other defenses and issues that could have been alleged but were not, potentially greatly expanding the range of issues that must be addressed in a proceeding already rendered lengthy and complicated due to the two-layered character of a legal malpractice case.
Of course, the defendant can address all questions relating to the missing evidence, putting on witnesses to counter the points not made in the first trial but made with the missing witnesses’ testimony in the malpractice trial. Similarly, the defendant can make evidentiary arguments that the missing evidence should be (and would have been) excluded, even though such arguments were not made in the underlying case for the obvious reason that the missing evidence was never presented. However, the defendant cannot, for instance, raise the defense that the contract lacked consideration if that defense was not raised in the underlying trial.
This means that an underlying case that was badly defended but tried presents a better opportunity for a malpractice plaintiff than where the underlying case was never tried. In the latter case, the malpractice defendant is less restricted in presenting the best available defenses to the underlying claim to rebut damages – the whole world of potentially good defenses is its oyster.