The first element of a legal malpractice claim is an attorney-client relationship that establishes a duty of care owed to the client. However, this element has been expanded to include obligations owed to nonclients as well. Attorneys must not only be vigilant in the performance of their obligations to those who are undisputedly their clients, but also to any others who they know are, or who foreseeably could be, relying on the attorney’s work, representations or promises to take specific action.
Over the years, the courts have addressed legal malpractice claims against attorneys who were not only not representing the plaintiff, but were actually adversarial to the plaintiff. In the nonadversarial-type cases, the attorney may have prepared financial documents or reports for a client, which the attorney knew or should have known another party would rely on when making certain investment decisions. In the adversarial cases, the offending attorney is accused of making misrepresentations to opposing counsel/party in order to induce settlement or the completion of a transaction, or other negligent (not necessarily intentional) acts. Frequently, these nonclient legal malpractice claims are dismissed for lack of privity, but not always.
Patrillo v. Brachenberg, 139 N.J. 472 (1995), was the first Supreme Court case to address the issue of attorney liability to third parties. The case involved a prospective property purchaser’s claim of negligence against a seller’s consulting attorney for providing insufficient percolation test results, which the purchaser relied upon. The case provides a detailed analysis of how claims against attorneys by nonclients should be examined. The Supreme Court first explained that the determination of the existence of a duty is a question of law for the court. And whether an attorney owes a duty to a nonclient depends on balancing the attorney’s duty to represent clients vigorously (as provided by Rule 1.3 of the Rules of Professional Conduct), with the duty not to provide misleading information on which third parties foreseeably will rely (as established by Rule 4.1 of the RPC).
Several Appellate Division cases had already recognized that attorneys may owe a duty to nonclients. This duty is considered a separate independent duty created by the circumstances, which is generally the case with any other tort claim. These older Appellate Division cases include Stewart v. Sbarro, 142 N.J. Super. 581 (App. Div. 1976); Albright v. Burns, 206 N.J. Super. 625 (App. Div. 1986); and R.J. Longo Construction v. Schragger, 218 N.J.Super. 206 (App. Div. 1987). The Patrillo court detailed several other cases in other jurisdictions. These cases are worth looking at when assessing a claim by a nonclient.
Examples of New Jersey cases where a duty was found to exist include:
An attorney who promised to obtain his client’s signature on a bond and failed to do so, causing the other party damages;
An attorney who knowingly facilitated improper transactions involving the holder of the decedent’s power of attorney and was liable to the estate even though he was not the estate’s attorney; and
Township attorneys who were held responsible to a construction contractor when they failed to obtain easements the contractor was relying on.
Other jurisdictions have found liability in such instances as: when an attorney issued an opinion letter regarding a potential borrower’s financial condition, which turned out to be untrue/completely inaccurate and which opinion had been based solely on the borrower’s assurances. This attorney was held accountable to the lender after the borrower defaulted on its loan. In Century 21 Deep South Properties v. Corson, 612 So.2d 359 (Miss.1992), the Mississippi Supreme Court held that “an attorney performing title work will be liable to reasonably foreseeable persons who, for a proper business purpose, detrimentally rely on the attorney’s work.” In that case, the real property purchaser sued the seller’s attorney for negligence when his title search report turned out to be incorrect to the buyer’s detriment.
These cases all invoke the typical tort analysis: Was there foreseeable reliance and foreseeable damages? Was the plaintiff an intended third-party beneficiary of the attorney’s act? Was there some type of fiduciary relationship between the attorney and the nonclient? Was there an effort by the attorney to induce reliance by the nonclient?
The New Jersey Supreme Court addressed this issue again in 2005 in Banco Popular North America v. Gandi, 184 N.J. 161 (2005). Banco Popular involved a bank’s lawsuit against a loan guarantor and the guarantor’s attorney. The Supreme Court held that the bank stated a valid claim of negligent misrepresentation against the guarantor’s attorney for negotiating terms of the loan and issuing an opinion letter to the bank that falsely stated the guarantor’s assets, even though the complaint did not specify a cause of negligent misrepresentation. The bank alleged that the attorney breached a duty in that he knew that the guarantor’s statement of assets to the bank was false, and the attorney negotiated the loan with the bank based on false statements and then issued an opinion letter stating that there were no material matters contrary to their representations. The Supreme Court found the allegations sufficient to state a claim against the guarantor’s attorney even though the bank was not the attorney’s client.
One area of law in which the issue of an attorney’s obligation to nonclients has frequently arisen is estate matters. Beneficiaries have sued counsel for the estate when estate tax issues arise or when their respective inheritances are in any way negatively impacted due to the drafting of the will or administrative act. Estate of Albanese v. Lolio, 393 N.J. Super. 355 (App. Div. 2007), provides an analysis of the scope of the duty owed by an attorney retained to assist in the administration of an estate to the executor/trix, individually as a beneficiary, and to other beneficiaries of the estate. The Albanese court confirmed that the estate’s attorney did not owe a duty to the children beneficiaries in terms of advising them about the tax consequences of disclaiming their father’s inheritance relying on two prior cases which established a “fairness” doctrine.
The Albanese court discussed two legal malpractice cases commenced by nonclient beneficiaries: Barner v. Sheldon, 292 N.J. Super. 258 (App. Div. 1995), and Estate of Fitzgerald v. Linnus, 336 N.J. Super. 458 (App. Div. 2001). In both cases, no duty was found to exist, though both courts did recognize that the absence of an attorney-client or fiduciary relationship does not necessarily bar a legal malpractice claim by a nonclient; an independent duty may indeed exist. The Fitzgerald court stated that whether an independent duty is owed to a nonclient is a question of law that turns on considerations of fairness and policy.
Ultimately, the Albanese court found that although the attorney did not owe a duty to the children beneficiaries, the attorney did owe a duty to the executrix of the estate. The duty arose not out of some independent obligation, but because the retainer-agreement language was unclear and appeared to actually obligate the attorney to provide services to the executrix herself, as an individual beneficiary, as well as to the estate, since it used the word “us” when referring to the client(s). The Albanese court impliedly found an obligation because of actual privity with the executrix individually and not because of an outside duty.
Comporting with general tort principles, a lawyer’s duty to a nonclient (when there really is no privity) arises when the lawyer intended or should have foreseen that the third party/nonclient would rely on the lawyer’s work, representations or assurances.
Because the courts’ treatment of claims by nonclients against attorneys sounds more in common-law tort negligence or negligent misrepresentation, or even the intentional tort of fraud, it then begs the question of whether an affidavit of merit is necessary in these cases. (New Jersey law requires that an affidavit of merit be filed whenever a negligence claim is made against any licensed professional.) The case law does not address this question and the filing of an affidavit of merit is not mentioned in the cases that address the privity versus outside-duty issue. But, to be safe, any practitioner should obtain one whether suing an attorney on behalf of a party that was an actual client of the defendant attorney, or suing on behalf of any other nonclient/third party. Because even though the latter is really a basic negligence claim (where no privity is involved) and seems to trigger a basic negligence analysis, the case law sometimes refers to such nonclient claims as legal malpractice and not merely negligence. •