## Facts

- Promoters formed Hightower Productions, Ltd. to finance a flagpole-sitting publicity stunt by selling stock to the public, expecting to raise about $250,000.
- In November 1974, they retained attorney Paul Wartzman and his firm to incorporate the venture and structure it for public stock sales.
- Wartzman formed the corporation with articles authorizing 1,000,000 shares at $0.10 par value ($100,000 authorized capital).
- Hightower spent substantial sums to prepare the venture (office setup, hiring the performer, building the mobile flagpole unit, staffing, and promotions) and sold shares to acquaintances, raising about $43,000.
- About two weeks before launch, Wartzman advised Hightower it could not sell additional stock because the corporation and offering were improperly structured and not compliant with Maryland securities requirements; no offering materials or required disclosures had been prepared.
- Replacement counsel advised prior sales issues required escrow of raised funds and additional work (weeks) before lawful sales could continue.
- With insufficient time and funding, the shareholders abandoned the project and sued Wartzman and his firm for malpractice and breach of contract, seeking expenditures made in reliance on the legal services.

## Issues

1. Whether reliance damages (preparatory and performance expenditures) were recoverable for attorney breach/malpractice where anticipated profits were speculative, and whether the attorney’s conduct proximately caused the venture’s failure.
2. Whether the client failed to mitigate damages by not hiring a securities specialist to attempt to fix compliance problems and continue the venture.
3. Whether prejudgment interest should have been submitted/awarded on the damages.

## Decision

- The court affirmed the jury verdict awarding $170,508.43 in reliance damages.
- It held reliance damages were a proper measure because expected profits from the venture were uncertain; recovery could include expenses incurred in reliance on the attorney’s undertaking, subject to offset for losses the client would have suffered even if the contract had been performed.
- It upheld the jury’s finding of proximate causation because the attorney knew the venture depended on lawful stock sales and the breach disabled that financing method.
- It held the client had no duty to mitigate by undertaking substantial additional expense to attempt a cure (retaining a securities specialist costing $10,000–$15,000).
- It affirmed denial of prejudgment interest because the damages were unliquidated and not readily ascertainable before the verdict.

## Legal Principles

- When expectation damages are speculative, a plaintiff may recover reliance damages: expenditures reasonably made in preparation for or performance of a contract, reduced by any loss the plaintiff would have incurred had the contract been performed.
- In attorney-client engagements, foreseeability and causation may encompass failure of a transaction when the lawyer is retained to structure the transaction to avoid the legal defect that later defeats it.
- Mitigation does not require an injured party to incur substantial additional expense or take burdensome, uncertain corrective measures.
- Prejudgment interest is generally unavailable as of right on unliquidated damages that require fact-finding and valuation by the trier of fact.

## Conclusion

The court upheld a reliance-damages award against transactional counsel whose negligent structuring and securities noncompliance prevented lawful stock sales that were central to the client’s financing plan, rejected a mitigation defense based on requiring further costly remedial legal work, and denied prejudgment interest because the losses were unliquidated until the jury’s verdict.


Wartzman v. Hightower Prods., Ltd., 456 A.2d 82 (Md. Ct. Spec. App. 1983)