Borissoff: Attorney Duties Can Run to Third Party that Legislature Determines Assumes Rights, Powers of Original Client
LACBA Update, November 2004
By David L. Brandon of Morris Polich & Purdy LLP. Brandon is a member of LACBA’s Professional Responsibility and Ethics Committee. The opinions expressed are his own.
When an attorney is hired by the administrator of a probate estate to provide tax advice and commits malpractice, to whom is the attorney liable? Can the attorney be sued by a successor estate administrator with whom the attorney never had a relationship, and who did not retain or pay the attorney?
The California Supreme Court recently ruled that a successor administrator can in fact sue the original administrator’s attorney, even though there was no privity of contract between the attorney and the successor administrator, and even though the successor administrator was not the intended beneficiary of the relationship between the original administrator and the attorney. Borissoff v. Taylor & Faust (2004) 33 Cal.4th 523.
The Supreme Court had previously held that an attorney could be held liable for malpractice only to the client with whom the attorney stands in privity of contract and not to third parties. Goodman v. Kennedy (1976) 18 Cal.3d 335, 342-344. The court also had ruled that when a fiduciary hires an attorney for advice regarding administering a trust, the attorney’s only client is the fiduciary. The trust itself is not the client. Moeller v. Superior Court (1997) 16 Cal.4th 1124, 1129-30; see also Fletcher v. Superior Court (1996) 44 Cal.App.4th 773, 777. Neither is the trust beneficiary the attorney’s client. Wells Fargo Bank v. Superior Court (2000) 22 Cal.4th 201, 212.
There is a recognized exception to the privity rule. The court had previously ruled that a non-client could sue an attorney if the non-client could demonstrate that it was the intended beneficiary of the attorney’s relationship with the actual client, i.e., where the plaintiff was suing as a third-party beneficiary. This rule permitted the intended beneficiaries under a will to sue the testator’s attorney if the attorney’s negligence resulted in a failure of the testamentary intent. Lucas v. Hamm (1961) 56 Cal.2d 583.
In Borissoff, however, the court was faced with a situation that did not fall neatly into either of these situations. There, the decedent left two wills, one of which named plaintiff Borissoff as executor. However, a will contest was filed, and the court appointed an independent party as a special administrator pending resolution of the contest. The special administrator then retained counsel to provide assistance on tax matters and to file tax returns.
The special administrator then took a substantial unauthorized loan from the estate for personal reasons. Later, the special administrator contacted the attorneys and asked for help in keeping him “out of trouble.” When the attorneys were unable to arrange a loan for the special administrator, they withdrew from representation. The special administrator then died.
The attorneys then turned their file over to successor counsel, who failed to file a document that would have enabled the estate to apply for a tax refund. As a result, the estate lost the ability to recoup substantial administrative expenses related to the will contest.
About two years later, the court finally decided the will contest and appointed plaintiff Borissoff as the executor. (It appears that there was no administrator between the death of the special administrator and Borissoff’s appointment.) Borissoff then sued both sets of attorneys for malpractice. The case was tried to the court on stipulated facts, and the trial court ruled that Borissoff lacked standing to sue the attorneys. After all, Borrisoff was not in contractual privity with the attorneys because he had not hired them and was clearly not the intended beneficiary of the relationship between the special administrator and the attorneys. Instead, Borrisoff was merely the successor personal representative of the estate.
The Supreme Court sought and found a substitute for the requirement of privity or intended beneficiary standing in the Probate Code. The court noted the Probate Code provided that a successor personal representative has all of the powers and duties of the former personal representative, including the power to retain tax counsel, and the power to commence and maintain actions and proceedings for the benefit of the estate. Since the original representative has the power to retain counsel and sue counsel if counsel is negligent, and the successor representative has all the powers of the original representative, the court determined that it was an inescapable conclusion that the successor representative could also sue counsel. “In short, the absence of privity, viewed as an impediment to standing, is a gap the Legislature has filled.” Id. at 530.
Borissoff teaches that an attorney’s duties can run not just to the client with whom the attorney contracted, and not just to a third party whom the client intended to benefit from the attorney-client relationship, but also to a third party that the Legislature may determine assumes the rights and powers of the original client. Attorneys who are engaged to represent clients that occupy positions created by statute should be aware of the implications of this opinion.