Liability to Non-Clients
Liability to Non-Clients
By Thomas P. Sukowicz, director, Lawyers' Risk Management Services at Hinshaw & Culbertson. Sukowicz works out of the firm's Ft. Lauderdale and Chicago offices. The opinions expressed are his own. The firm's risk management Web site is located at www.lawyeringlaw.com
Traditionally, when a lawyer provides legal services to a client, the lawyer is liable only to the client for errors and omissions arising out of that legal representation. As one court recently put it, "an attorney is immune from liability to third persons arising from the attorney's professional activities on behalf of and with the knowledge of the client, absent an independent duty to the third party." Douglass v. Boyce,No. 25249 (S.C., Feb. 12, 2001). In that case, the court held that the lawyer representing the executor of an estate isn't liable to the decedent's alleged illegitimate son because no duty was owed.
Lawyers owe a duty of undivided loyalty to clients. The recognition of a duty owed to the client's adversary would interfere with this duty. Thus, an attorney who had represented a woman's estate planning wasn't liable to the client's children for erroneously identifying the assets they were to inherit; to impose on the lawyer a duty to the children of the client would conflict with the attorney's obligation to exercise independent judgment on behalf of the client, unfettered by fear of claims. Miller v. Mooney, 431 Mass. 57, 725 N.E.2d 545 (2000).
The duty of undivided loyalty is especially strong when dealing with one who is adverse to the client. Winters v. Schulman, 977 P.2d 1218 (Utah Ct.App. 1999). For example, a student who had been expelled from a university wasn't allowed to sue the attorney for the university for negligence because the student was in an adversarial relationship with the lawyer's client. Devers v. Southern University, 712 So.2d 199 (La. Ct. App. 1998).
Even a potentially adverse relationship between the lawyer's client and the third person will preclude any duty on the part of the lawyer to the third person, such as that between the representative of an estate and its beneficiaries. In re Estate of Kirk,686 N.E.2d 1246 (Ill. App. Ct. 1997).
Because of the duty of undivided loyalty, a lawyer owes no duty to parties with interests that conflict with those of the client. For example, a lawyer representing the seller cannot owe a duty to a purchaser when the client's instructions conflicted with the wishes of the purchaser. Shivvers v. Hertz Farm Management, Inc., 595 N.W.2d 476 (Iowa 1999). Likewise, the attorney for a decedent's estate and its beneficiaries owed no duty to decedent's mother, whose dispute of the entitlement of the beneficiaries created a conflict with the interests of the lawyer's clients. Oxendine v. Overturf, 973 P.2d 417 (Utah 1999). Similarly, a lawyer representing a woman in a divorce owes no duty to her client's father, even though the father has guaranteed the payment of the legal fees, because the father's interest as guarantor could conflict with the lawyer's obligation to exercise independent judgment on behalf of the client. DeAngelis v. Rose,320 N.J.Super. 263, 727 A.2d 61 (1999).
In most jurisdictions, courts have been expanding the limits of lawyer liability to non-clients by recognizing independent duties to third parties. California was among the first when it adopted a balancing test that considers six factors:
1. the extent to which the transaction was intended to affect the plaintiff,
2. the foreseeability of harm to the plaintiff,
3. the degree of certainty that the plaintiff suffered injury,
4. the closeness of the connection between the attorney's conduct and the injury,
5. the policy of preventing future harm, and
6. whether recognition of liability under the circumstances would impose an undue burden on the legal profession. Lucas v. Hamm,56 Cal.2d 583, 15 Cal. Rptr. 821, 364 P.2d 685 (1961).
Few jurisdictions have followed the California approach.
The most common basis for liability to non-clients is that of "intended beneficiaries" of the attorney-client relationship. This theory is most commonly applied to situations involving wills or other testamentary instruments when the lawyer's negligence resulted in the frustration of the intent of the testator from being carried out. For example, where the testator intended to make bequest to a third party, but the documents prepared by testator's attorney failed to include a necessary notary form, the instrument was void and the intended gift failed. Because the lawyer's negligence was the proximate cause of the will having been declared void, the attorney was found liable for negligence. Holsapple v. McGrath, 521 N.W.2d 711 (Iowa 1994).
The same principle applies to trust instruments, such as when a lawyer was held to be liable to the testamentary beneficiaries of a trust for allegedly drafting the trust instruments in a manner that resulted in the payment of $200,000 in unnecessary taxes. Blair v. Ing,No. 22401 (Hawaii, Feb. 27, 2001).
Intended beneficiary standing isn't limited to situations involving testamentary instruments. An adoptive child was held to have been the intended beneficiary of the relationship between the adoptive parents and their attorney. Rushing v. Bosse, 652 So.2d 869 (Fla. Dist. Ct. App. 1995). The creditors of a corporation in receivership were held to have been the intended beneficiaries of the attorney-client relationship between the receiver and the court-appointed attorney because the order appointing the attorney "by necessary implication bound him to those creditor beneficiaries." Prescott v. Coppage, 266 Md. 562, 296 A.2d 150 (1972).
Among the jurisdictions that recognize intended beneficiary liability, the fact that the attorney's representation of a client confers on a third person an "incidental" benefit doesn't support such liability. Pelham v. Griesheimer,92 Ill.2d 13, 440 N.E.2d 96 (1982). For example, an attorney retained by a woman to protect the family assets from her husband's creditors by transferring the family's assets to herself and then dissolving the marriage owed no duty to the husband, as the purpose of the retention was not to benefit the husband. Makela v. Roach, 142 Ill. App.3d 827, 492 N.E.2d 191 (1986).
Some courts take pains to point out that a lawyer is liable only to the intended beneficiaries of the attorney-client relationship, not the intended beneficiaries of decedents' estates. Noble v. Bruce,349 Md. 730, 709 A.2d 1264 (1998); Copenhaver v. Rogers, 238 Va. 361, 384 S.E.2d 593 (1989).
Another fertile area of claims by non-clients is that of negligent misrepresentation. The most common basis for a claim of negligent misrepresentation is an opinion expressed by an attorney on which the plaintiff claims to have relied to his detriment. Thus, an attorney representing a borrower may be liable to the lender for furnishing an erroneous title opinion, when the borrower was obligated to provide the title opinion to the lender concerning the property to be secured. Home Budget Loans, Inc. v. Jacoby & Meyers Law Offices, 207 Cal. App.3d 1277, 255 Cal Rptr. 483 (1989). Similarly, a lender may sue the attorney for the borrower for allegedly misrepresenting to the lender the status of funds wired by the bank to the client's trust account. Riggs National Bank of Washington, D.C. v. Freeman, 682 F.Supp. 519 (S.D.Fla. 1988).
The same principle applies in other commercial transactions. For example, a lawyer may be liable for a letter provided to a contractor containing an unqualified representation of the client's ability to pay, and the representation was made in order to induce the loan. Kirkland Construction Co. v. James,39 Mass.App.Ct. 559, 658 N.E.2d 699 (1995). Real estate developers may sue the lawyers representing their creditors for negligently misrepresenting the authority of the creditors to settle the underlying dispute. McCamish, Martin, Brown & Loeffler v. F.E. Applying Interests, 991 S.W.2d 787 (1999).
Some courts attempt to draw a distinction between the negligent misrepresentation of a matter of fact and the expression of a pure opinion. For example, one court dismissed a claim of negligent misrepresentation against the attorney for a partnership regarding the authority of the managing partner to act for the partnership. City National Bank of Detroit v. Rodgers & Morganstein, 155 Mich. App. 318, 399 N.W.2d 505 (1986).
Sometimes it's difficult to see how an opinion like that in Rodgersis different in nature from the opinion in the McCamishcase about the authority of the client to settle. A concern for lawyers is that their opinions sometimes are sought to provide a source for collection should the transaction fail. The safest course is to use the utmost care to be accurate when giving an opinion to an adverse party who intends to rely on it.
Lawyers may be liable to those who the lawyers consider to be non-clients but who consider themselves to be the lawyer's clients. This is true because the existence of an attorney-client relationship need not be based on an express attorney-client contract but may be implied from the parties' conduct and surrounding circumstances, creating an implied-in-fact contract. Rallis v. Cassady,et al., 84 Cal.App.4th 285, 100 Cal.Rptr.2d 763 (2000).
Courts in several jurisdictions have found attorney-client relationships based on the "reasonable belief" of the putative client. An Ohio court, for example, held that the ultimate issue in making such a determination is "whether the putative client reasonably believed that the relationship existed and that the attorney would thereafter advance the interests of the putative client." Hatfield v. Seville Centrifugal Bronze, 106 Ohio Misc.2d 10, 732 N.E.2d 1077 (2000).
Similarly, in Bartholomew v. Bartholomew, 611 So.2d 85 (Fla. Ct.App. 1992), the court held that an individual's subjective but reasonable belief that the individual is consulting a lawyer in his or her legal capacity, together with a manifestation of the individual's intention to seek professional legal advice, are sufficient to create an attorney-client relationship.
When a lawyer represents one party in a legal matter, and one or more other parties are unrepresented, the lawyer should make it clear to the other parties that he or she doesn't represent them. Rule 4.3 of the Model Rules of Professional Conduct provides that when an unrepresented person misunderstands the role of the lawyer, it's the duty of the lawyerto make reasonable efforts to correct the misunderstanding.
Lawyers may protect themselves from claims by persons they don't represent by the use of letters stating that they represent only their client and no one else. Such a "non-representation" letter may be the strongest evidence lawyers can present to defeat a malpractice claim from one whom they don't consider to be a client.
This article is intended to inform the reader of potential liability exposures for attorneys. This article reflects general principles only and does not render legal advice. Readers should consult legal, financial, insurance and other advisors if they have specific concerns. Neither the Los Angeles County Bar Association, Aon and its affiliates, nor the author assumes any responsibility for how the information in this article is applied in practice or for the accuracy and completeness of the information.
Reproduction without written permission is prohibited. This article, originally appearing in the Aon Attorneys' Advantage Risk Management Newsletter, The Quarter Hour, is reprinted with the permission of Aon Attorneys' Advantage and is made available to County Bar Update by Aon Direct Insurance Administrators, administrators of the LACBA Sponsored Aon Insurance Solutions Program.
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