Professional Liability Legal Can Be Sued by

By Daniel S. Strick Non-Clients? and Jordan S. Tafflin

Attorneys should focus During the course of the representation of a client, an on steps to minimize or attorney may commit legal malpractice with respect to the avoid exposure, as it is prosecution, defense, or appeal or the preparation of trans- becoming apparent that actional documents. Indeed, the attorney’s actions may constitute legal malpractice by failing to action against that attorney absent the courts will continue use the skill, prudence, and diligence that or collusion. Nation Savings Bank v. Ward, attorneys of ordinary skill and capacity 100 U.S. 195 (1879). This rule was premised to expand lawyers’ would use in performing their legal tasks. upon two basic concerns. First, “absent a However, can an attorney be liable to a non- requirement of privity, parties to a con- liabilities to non-clients. client for legal malpractice? tract for legal services could easily lose Generally, legal malpractice consists of control over their agreement.” Schriener three elements: (1) existence of an attorney-­ v. Scotbille, 410 N.W. 2d 679 (Iowa 1987). client relationship creating a , Second, “imposing a duty to the general (2) breach of that duty, and (3) proximate public upon lawyers would expose lawyers causation. McGrogan v. Till, 771 A.2d 1187 to a virtually unlimited potential for lia- (N.J. 2001). An attorney generally owes a bility.” Id. duty to perform diligently and with a high Since the Supreme Court’s decision in degree of “fidelity and good faith.” Gilles Ward, however, numerous courts have con- v. Wiley, Malehorn & Sirota, 783 A.2d 756 tinually chipped away at the “black letter (N.J. App. Div. 2001); see also Steiner v. law,” carving out a number of exceptions to Markel, 968 A.2d 1253 (Pa. 2009). To fulfill this rule. As such, the majority rule today his or her duties, an attorney must exercise is attorneys, in certain circumstances, do that degree of reasonable knowledge and owe a duty to non-clients. As a result, it is skill that lawyers of ordinary ability and important to understand the various argu- skill possess and exercise. Id. ments supporting strict privity in legal-­ Over 100 years ago, the United States malpractice actions and those supporting Supreme Court held that a third party a relaxing of strict privity. The primary not in privity of with an attor- ethical considerations that underlie the ney could not maintain a legal malpractice various arguments for and against strict

■ Daniel S. Strick and Jordan S. Tafflin are senior associates at Lucas and Cavalier LLC in the firm’s Philadelphia office. Their practices primarily focus on a variety of professional liability claims throughout Pennsylvania and New Jersey. Mr. Strick currently serves as the publications chair of DRI’s Professional Liability Committee.

© 2012 DRI. All rights reserved. For The Defense ■ July 2012 ■ 55 Professional Liability privity are (1) the duty of loyalty owed to a (Neb. 2004). They argue that an attorney S.W.3d 615 (Mo. App. 2010); Grimes v. Saik- client, and (2) the concept of avoiding con- can prevent the loss by exercising adequate ley, 904 N.E.2d 183 (Ill. App. 2009); Chang flicts of interest. Not surprisingly, there are diligence or implementing precaution- v. Lederman, 172 Cal. App.4th 67 (2009); advocates on both sides of this hotly con- ary procedures designed to discover neg- Donahue v. Shughart, Thomson & Kilroy, tested issue. ligence before any resulting harm, and P.C., 900 S.W.2d 624 (Mo. 1995). Proponents of strict privity argue that should therefore bear the loss. Opponents An attorney’s knowledge that third par- greater attorney liability could adversely of the strict privity rule also advocate that ties will be affected by the representation affect the overall approach of how a increasing attorney liability will result in of the client is not in and of itself sufficient counsels his or her client. They argue that more careful legal representation, a higher to create a duty of care to the third party. degree of professional care, and greater dil- B.L.M. v. Sabo & Deitsch, 55 Cal. App. 4th igence. The role of an attorney should be 823 (1997). An essential predicate for estab- more like that of an advisor and consultant lishing an attorney’s duty of care under an An attorney’s knowledge rather than a mere scrivener. Charleson v. “intended beneficiary” theory is that both Hardesty, 839 P.2d 1303 (Nev. 1992). Fur- the attorney and the client must intend for that third parties will thermore, it has been argued that expand- the third party to be a beneficiary of legal ing liability for attorneys will bring all services that the attorney was to render. Id. be affected by the professionals under the same standard, The clear absence of mutual intent on the eliminating the special privileges that part of the lawyer and the client is critical representation of the attorneys enjoy above other professionals, to whether the third party can maintain a such as physicians and accountants. viable legal malpractice claim. An attor- client is not in and of itself In light of the above, this article lays ney’s undertaking of a duty to the third out some of the numerous interpretations party must be the result of a conscious sufficient to create a duty made by different courts regarding the decision. Zenith Ins. Co. v. O’Connor, 148 strict privity rule, including some that fol- Cal. App. 4th 998 (2007); Donahue, 900 of care to the third party. low the rule and some that do not. S.W.2d at 629 (the first factor a non-client must demonstrate includes a showing that Jurisdictions Permitting Non- it cannot be characterized as an incidental relaxing strict privity would create con- Client Legal Malpractice Claims or indirect beneficiary). flicts of interest among clients and third There are many jurisdictions that allow parties, ultimately exposing attorneys to third parties to bring legal malpractice Jurisdictions Not Permitting Non- broad potential liability, and that the strict claims where no attorney-­client relation- Client Legal Malpractice Claims privity rule is efficient as it limits would- ship is formed. In these jurisdictions, the There are several jurisdictions that require be plaintiffs and removes the fear of poten- attorney may be liable to a third party the existence of an attorney-­client relation- tial liability. Guy v. Liederbach, 459 A.2d where the third party was an intended ben- ship in order for an attorney to be liable for 744 (Pa. 1983). Further, advocates of the eficiary of the attorneys’ services or where legal malpractice. In order to establish lia- strict privity requirement argue because it was reasonably foreseeable that negligent bility for professional or legal an attorney’s primary purpose is to repre- service or advice to or on behalf of the cli- malpractice, the plaintiff must show the sent his or her client’s interests zealously, ent could cause harm to others. Waggoner existence of a duty owed to them by the if courts relax strict privity rules then con- v. Snow, Becker, Kroll, Klaris & Krauss, 991 attorney, a breach of that duty, and dam- flicts between a duty to a client and duties F.2d 1501 (9th Cir. 1993). There are six con- ages arising from the breach. Banc One to third parties will result. Id. They claim siderations courts analyze to determine Capital Partners Corporation v. Kneipper, that attorneys cannot maintain the same whether a duty arises absent privity of 67 F.3d 1187 (5th Cir. 1995). Allen v. Steele¸ standard of care to a third party as the contract and not based upon the attorney-­ 252 P.3d 476 (Colo. 2011). Under Texas attorney maintains to a client, and as a client relationship. These considerations law, there is no attorney-­client relationship result, expanding liability may cause attor- are “(1) the extent to which the transaction absent a showing of privity of contract, and neys to adopt overprotective practices and was intended to affect the plaintiff; (2) the an attorney owes no professional duty to conservative approaches in dealing with foreseeability of harm to the plaintiff; a third party or non-client. First National their own clients out of a fear of potential (3) the degree of certainty that the plaintiff Bank of Durant v. Trans Terra Corporation liability to non-­clients. Id. suffered injury; (4) the closeness of the con- International, 142 F.3d 802 (1998); Ryddle Opponents of the strict privity rule nection between the defendant’s conduct v. Morris, 675 S.E.2d 431 (S.C. 2009) (find- argue that the most significant policy rea- and the injury; (5) the policy of prevent- ing before a claim for malpractice may be son in favor of abandoning the outmoded ing future harm; and (6) whether recog- asserted, there must exist an attorney-­ strict privity rule is that otherwise, “the nition of liability under the circumstances client relationship.). injury or property loss would fall to the vic- would impose an undue burden on the pro- Nonetheless, most of these jurisdictions tim, his or her family members, or the tax- fession.” Goldberg v. Frye, 217 Cal. App. 3d find a narrow set of circumstances in which payers.” Swanson v. Ptak, 682 N.W.2d 225 1258, 1268 (1990); France v. Podleski, 303 an attorney can be liable to a third party.

56 ■ For The Defense ■ July 2012 These circumstances arise when the attor- actions, is subject to liability for cial transactions… the law promotes the ney has committed fraud or a malicious pecuniary loss caused to them by important social policy of encouraging or tortious act, including negligent mis- their justifiable reliance upon the the flow of commercial information upon representation. Allen v. Steele¸ 252 P.3d information, if he fails to exercise which the operation of the economy rests.” 476 (Colo. 2011); Scholler v. Scholler, 462 reasonable care or competence in Restatement (Second) of §552 cmt. a. N.E.2d 158 (Oh. 1984) (a obtaining or communicating the Common usage supports the Restate- for legal malpractice exists only if the evi- information. ment’s explanation that a business trans- dence shows either: (1) that the plaintiff is (2) Except as stated in Subsection (3), action is a commercial transaction. Black’s in privity with the client of the defendant the liability stated in Subsection (1) Law Dictionary defines “business” as a attorney, or (2) that the defendant attorney is limited to loss suffered acted maliciously). Absent these limita- (a) by the person or one of a lim- tions, lawyers would be potentially liable to ited group of persons for whose an unforeseeable and unlimited number of benefit and guidance he intends Attorneys’ liability is also third parties. Id. Attorneys’ liability is also to supply the information or limited due to the adversarial nature of lit- knows that the recipient intends limited due to the adversarial igation in which “injury to a third person to supply it; and often is the direct, intended objective of the (b) through reliance upon it in a nature of litigation in attorney’s representation.” Allen, at 482. transaction that he intends the Hess v. Fox Rothchild, LLP, 925 A.2d 798, information to influence or which “injury to a third 806 (Pa. Super. 2007) (“to maintain a claim knows that the recipient so in- of legal malpractice based on negligence, a tends or in a substantially sim- person often is the direct, plaintiff must show an attorney-­client or ilar transaction. analogous professional relationship with Section 552 of the Restatement (Second) intended objective of the the defendant-attorney.”).­ of Torts. The requirement that the misrepresenta- attorney’s representation.” Negligent Misrepresentation Claims tion was made “for the guidance of others Regardless of whether an attorney-­client in their business transactions” is an essen- relationship is required for a legal mal- tial element of the of negligent mis- “commercial enterprise carried on for practice case, no such requirement exists representation. Allen, 252 P.3d at 483. This profit; a particular occupation or employ- for a negligent misrepresentation claim. element is separate and in addition to the ment habitually engaged in for livelihood In virtually all jurisdictions, an attorney element that the defendant attorney made or gain.” Black’s Law Dictionary 226 (9th may be liable to a non-client for negligent the misrepresentation “in the course of his Ed. 2009). A “business transaction” is misrepresentation. business, profession or employment.” Id. defined as an “action that affects the actor’s The elements of a negligent misrepre- The “guidance of others in their business financial or economic interests, including sentation claim are that attorney: (1) in the transactions” element means that the de- the making of a contract.” Allen, at 484. course of his or her business, profession fendant attorney provided information to The tort of negligent misrepresentation or employment; (2) makes a misrepresen- guide others, meaning, to guide the recip- is intended to provide a remedy for, and tation of a material fact, without reason- ient of the information, in his or her busi- is in fact limited to, “money losses due to able care; (3) for the guidance of others in ness transactions. Id. The recipient of the misrepresentation in a business transac- their business transactions; (4) with know- information could fall into two classes of tion.” W. Cities Broad, Inc. v. Schueller, 849 ledge that his or her representations will people. First, the recipient could be a third P.2d 44 (Colo. 1993). In cases in which the be relied upon by the injured party; and party, to whom the attorney provides guid- plaintiff stated a viable claim of negligent (5) the injured party justifiably relied on ance at the request of his or her client. Id. misrepresentation, the aggrieved plain- the misrepresentation to his or her detri- Second, the recipient could be a non-client, tiff entered into a business or commercial ment. Mehaffy, Rider, Windholz & Wilson to whom the attorney provides information transaction, or was induced to enter into v. Central Bank Denver, 892 P.2d 230 (Colo. directly. Id. the transaction, based on the defendant 1995); Tyler v. Sloane, 825 S.W.2d 439 (Tex. In the case of a prospective client attorney’s misrepresentations. Robinson v. 1991). Most jurisdictions look to section who does not retain the attorney, a crit- Omer, 952 S.W.2d 423, 427–28 (Tenn. 1997) 552 of the Restatement (Second) of Torts ical issue is whether a potential lawsuit (holding that negligent misrepresentation (1977) for guidance, which provides: against another party can satisfy the ele- did not apply where attorney gave advice (1) One who, in the course of his busi- ment of a “business transaction.” The com- for personal, not business, matters); Banco ness, profession or employment, or ments to section 552 of the Restatement Popular N. Am., 876 A.2d 253 (N.J. 2005) in any other transaction in which discuss liability in terms of “commercial (the attorney liable if the attorney’s actions he has a pecuniary interest, supplies transactions” and state that “[b]y limit- are intended to induce a specific non-cli- false information for the guidance ing the liability for negligence of a supplier ent’s reasonable reliance on the attorney’s of others in their business trans- of information to be used in commer- representations.).

For The Defense ■ July 2012 ■ 57 Professional Liability

Obligation Owed to Beneficiaries party beneficiary legal malpractice claim (Iowa 1998). Allowing such lawsuits would Jurisdictions are split as to whether a ben- against will drafting attorney); Nevin v. contradict a lawyer’s duty of undivided loy- eficiary of a will has standing to assert a Union Trust Co., 726 A.2d 694 (Me. 1999) alty to the client. Krawczyk v. Stingle, 543 legal malpractice case against the drafter of (individual beneficiaries do not have stand- A.2d 733 (Conn. 1988). A potential bene- the will. The attorney’s duty to a testamen- ing to sue planning attorney for mal- ficiary under a will had no vested interest tary beneficiary requires the attorney to practice when they are not the client who in the estate, and could not sue the attor- “effectuate the testator’s intent as expressed retained the attorney and when the estate ney who prepared the will for the client-­ in the testamentary instruments.” Harrig- is represented by a personal representa- decedent. Elam v. Hyatt Legal Serv., 541 feld v. Hancock, 90 P.3d 884 (Idaho 2004). tive who stands in the shoes of the client); N.E.2d 616 (Ohio 1989), Noble v. Bruce, 709 Noble v. Bruce, 709 A.2d 1264 (Md. 1998) A.2d 1264 (Md. 1998). (absence of privity precluded beneficia- However, other jurisdictions allow ries’ actions against attorney who drafted intended beneficiaries to bring legal mal- The tort of negligent will particularly where no con- practice suits against the will drafter when tradicts the supposition that the purpose the testamentary intent, as expressed in misrepresentation is of the contractual relationship was to ben- the will, is frustrated, and the beneficia- efit the testator, not beneficiary); Barcelo v. ry’s legacy is lost or diminished as a result intended to provide a Elliott, 923 S.W.2d 575 (Tex. 1996) (attorney of negligence. Espinosa v. Sparber, Sherin, owes no professional duty of care to trust Shapo, Rosen & Heilbronner, 586 So. 2d remedy for, and is in fact beneficiaries);Glover v. Southard, 894 P.2d 1221 (Fla. App. 1991); Leak-­Gilbert v. Fahle, 21 (Colo. App. 1994) (in action against will 55 P.3d 1054 (Okla. 2002); Guy v. Lieder- limited to, “money losses drafting attorney for failure to revise will, bach, 459 A.2d 744 (Pa. 1983) (while priv- attorney owed no duty or contractual duty ity is required to maintain an action in due to misrepresentation in to residual beneficiary); Copenhaver v. Rog- negligence for professional malpractice, a ers, 384 S.E.2d 593 (Va. 1989) (grandchil- named legatee of a will may bring suit as a business transaction.” dren, remaindermen under grandparents’ an intended third-party beneficiary of the testamentary trust, were precluded from contract between the attorney and the tes- bringing a legal malpractice action in tort tator for the drafting of a will that specifi- The attorney must properly draft and exe- for negligent performance of legal serv- cally names the legatee as a recipient of all cute the will and other instruments, but ices, absent privity, or an intended third- or part of estate). Where the remainder- only to effectuate the testator’s intent as party beneficiary claim absent allegations men’s interests in the estate were vested, expressed within those documents. Estate that they were the intended beneficiaries of they could bring a legal malpractice suit of Becker v. Callahan, 96 P.3d 623 (Idaho contract); Simon v. Zipperstein, 512 N.E.2d against the attorney who administered 2004). Lawyers have no duty to testamen- 636 (Ohio 1987) (will beneficiary was not the estate. Lewis v. Star Bank, N.A., Butler tary beneficiaries with regard to what share in privity with attorney preparing will County, 630 N.E.2d 418 (Ohio App. 1993). they receive from the testator’s estate, if and thus did not have standing); Lilyhorn Blair v. Ing, 21 P.3d 452 (Hawaii 2001) any. However, a lawyer may be held lia- v. Dier, 335 N.W.2d 554 (Neb. 1983) (attor- (where relationship between attorney and ble to the beneficiary of a will (even when ney’s duty does not extend to heir who was beneficiaries of trust was such that duty of there is a lack of privity between the two) not client); St. Mary’s Church of Schuyler v. care would be recognized, the beneficia- for negligent drafting when it caused the Tomek, 325 N.W.2d 164 (Neb. 1982) (attor- ries could proceed under either negligence beneficiary to spend considerable money ney who prepared will had no duty to pur- or contract theories); Powers v. Hayes, 776 defending the contest of the will. Rathblott ported beneficiaries of the will); Spivey v. A.2d 374 (Vt. 2001) (fact questions con- v. Levin, 697 F. Supp. 817 (D.N.J. 1988). Pulley, 526 N.Y.S.2d 145 (1998) (privity of cerning causation precluded summary A few jurisdictions retain the rule, contract is lacking); Conti v. Polizzotto, judgment against testator’s daughter who absent fraud, collusion, or malice, that an 663 N.Y.S.2d 293 (1997) (beneficiaries are brought legal malpractice action against attorney is not liable to a non-client for not in privity with will drafting attorney); the attorney who drafted testator’s will for harm caused by the attorney’s negligence Wright v. Gundersen, 956 S.W.2d 43 (Tex. failing to advise testator that changes to in the drafting of a will or planning an App. 1996) (attorney-­client relationship IRA beneficiary are not controlled by the estate. Miller v. Mooney, 725 N.E.2d 545 did not exist between attorney and testa- will); Mieras v. DeBona, 550 N.W.2d 202 (Mass. 2000) (testatrix’s children could tor’s daughter, as required to bring negli- (Mich. 1996) (beneficiary named in will not enforce any contract between testratix gence claim against attorney, and daughter may bring tort-based action against attor- and attorney as third-party beneficiary and lacked standing to assert a breach of con- ney who drafted will for negligent breach the attorney owed the children no duty of tract claim against attorney). An attorney of standard of care owed to beneficiary by care); McDonald v. Pettus, 988 S.W.2d 9 is not liable to plaintiffs for not including in nature of beneficiary’s third-party status); (Ark. 1999) (children of testator did not sat- the decedent’s will certain real-­estate assets Simpson v. Calivas, 650 A.2d 318 (N.H. isfy privity requirements of lawyer immu- the plaintiffs thought they would receive. 1994) (duty runs from attorney to intended nity statute and could not bring a third Holsapple v. McGrath, 575 N.W.2d 518, 521 Non-Clients, continued on page 69

58 ■ For The Defense ■ July 2012 Non-Clients, from page 58 of attorney could assert tort or contract banker who assists decedent in drafting beneficiary of will and an identified benefi- claim against attorney); Passell v. Watts, will owes duty of care); Rathblott v. Levin, ciary may enforce the terms of the testator’s 794 So. 2d 651 (Fl. App. 2001) (intended 697 F. Supp. 817 (D.N.J. 1988) (will draft- contract with the attorney as third party residual beneficiaries of testamentary doc- ing attorney could be liable to beneficiary beneficiary);Walker v. Lawson, 526 N.E.2d uments have standing to bring an action for despite lack of privity); Wisdom v. Neal, 968 (Ind. 1988) (an action lies by a bene- legal malpractice if they are able to show 568 F. Supp. 4 (D.N.M. 1982) (no attorney-­ ficiary under a will against the attorney that the testator’s intent as expressed in client relationship was necessary to permit who drafted that will on the basis the ben- the will is frustrated by the negligence of heirs to maintain action that attorney owed eficiary is a known third party); Schreiner the testator’s attorney); Johnson v. Sandler, a duty of care to heirs). v. Scoville, 410 N.W.2d 679 (Iowa 1987) (a Balkin, Hellman & Weinstein, 958 S.W.2d lawyer owes a duty of care to the direct, 42 (Mo. App. 1997) (a legal duty is owed Conclusion intended, and specifically identifiable ben- by an attorney to a non-­client who was the It is becoming apparent the courts will eficiaries of the testator as expressed in the intended beneficiary of a will or trust, but continue to expand attorneys’ liabilities testator’s testamentary instruments); Need- fact issue existed as to whether the attor- to non-clients. With this in mind, attor- ham v. Hamilton, 459 A.2d 1060 (D.C. 1983) ney was retained to benefit beneficiaries); neys should focus on steps to minimize (intended beneficiary of a will may have a Teasdale v. Allen, 520 A.2d 295 (D.C. App. or avoid such exposures. These preven- malpractice cause of action against draft- 1987) (allegedly intended beneficiaries had tive measures include using caution when ing attorney for negligence); Auric v. Con- standing to bring legal malpractice action); volunteering information to a non-client, tinental Casualty Co., 111 Wis. 2d 507, 331 Woodfork v. Sanders, 248 So. 2d 419 (La. and clarifying in writing, whenever possi- N.W.2d 325, 328 (1983) (a beneficiary may App. 1971) (legatee was not precluded from ble, limitations or disclaimers on the scope maintain an action against an attorney maintaining an action against attorney on and substance of any communications to who negligently drafted or supervised exe- theory of lack of privity); Licata v. Spector, a non-client. Also, the avoidance of hav- cution of a will even though the beneficiary 225 A.2d 28 (Conn. 1966) (beneficiaries ing statements construed as representa- is not in privity with that attorney); Stowe under a will which was invalid for lack of tions of fact, as opposed to expressions of v. Smith, 441 A.2d 81 (Conn. 1981) (bene- statutory requisites of attesting witnesses opinion, by expressly conveying that one’s ficiary of will claim against attorney who may maintain a negligence action against comments are opinions rather than facts, is drafted will who alleged will contained sig- attorney drafting will); Persche v. Jones, 387 imperative. Essentially, a lawyer must take nificant mistakes stated a cause of action as N.W.2d 32 (S.D. 1986) (based on rule that all reasonable measures to avoid the risk of third party beneficiary of contract); Lucas beneficiary actions exist under either third causing economic harm to any person that v. Hamm, 364 P.2d 685 (Cal. 1961), cert. party or tort theories against the attor- he or she has a reason to know may suffer denied, (1962) (intended beneficiaries who ney responsible for drafting a defective as a result of the lawyer’s actions. lost testamentary rights because of failure testamentary instrument, a non-­attorney

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