Approximately 20% of all lawsuits against attorneys arising out of the rendition of legal services are brought by non-clients. These claims are even more dangerous than ordinary malpractice claims for two principal reasons.
First, since a law firm rarely owes a duty of care to anybody other than a client, these lawsuits typically allege intentional misconduct, not negligence. Compared to negligence, intentional misconduct is far more likely to raise the interest of a disciplinary committee, and far less likely to be covered by a malpractice insurance policy.
Second, lawyers should practice law with a healthy fear of malpractice liability, but cannot practice law like they are scared of third parties. Many third party lawsuits are brought by individuals on another side of a litigation. Or transaction. Lawyers are often placed in a position where they are knowingly inflicting some kind of misfortune on others.
It is therefore critical for a lawyer to understand where the line is drawn between zealous advocacy and potential third-party liability.
- LIABILITY TO ADVERSE PARTIES
- Aiding or Participating In Client’s Breach Of Fiduciary Duty or Contract
- Be wary of the client looking for “advice” that would breach a fiduciary duty to a third party, especially a business partner. In Joel v. Weber, 602 N.Y.S.2d 383 (1st Dep’t 1993), Billy Joel’s business partner allegedly diverted some funds owed to him pursuant to a partnership agreement. The Piano Man sued not only his partner for breach of fiduciary duty, but his partner’s attorneys for aiding and abetting that breach. The law firm alleged that it was “immune” for any aiding and abetting liability, since it was merely providing legal advice. The First Department disagreed, holding that “[A]lthough mere negligence by an attorney in rendering advice to a client does not support a separate right of action by a third party allegedly injured by that advice, nevertheless, under New York law, an attorney may be held liable to third parties for actions taken for actions taken in furtherance of his role as counsel upon proof…of the existence of ‘fraud, collusion, malice or bad faith.'” Here, since the gravaman of the underlying claim was breach of fiduciary duty, the attorney could be held liable for aiding and abetting that breach.
- A related trouble spot occurs when an attorney negotiates an agreement while helping the client avoid performing the same agreement. In Contractors Casualty and Realty Co. v. I.E.A. Electric Group, Inc., 693 N.Y.S.2d 915 (N.Y. Sup., N.Y. County, 1999), an attorney was alleged to have participated in a settlement agreement whereby his client promised to make payments to a supplier. The attorney represented that his client was committed to making payments while simultaneously helping the same client hide assets. Justice Cahn ruled that the attorney could be held liable for common law fraud and a violation of the state fraudulent transfer statute.
- As attorneys, we are often asked to opine on whether a certain proposed action by a client would breach a contract. Erroneous advice may or may not equal malpractice recoverable by the client, but bad advice alone will not sustain a tortuous interference with contract claim brought by a third party. See Kline v. Schaum, 673 N.Y.S.2d 992 (2nd Dep’t 1997) (realtor could not recover commission from seller’s attorney who advised sellers that they need not pay commission, since an attorney is not liable for inducing a principal to breach a contract with a third party when acting on behalf of the principal within the scope of his authority); Beatie v. DeLong, 561 N.Y.S.2d 448 (1st Dep’t 1990) (discharged contingency fee lawyer has no claim against his successor attorney even though successor erroneously advised client that plaintiff had entered into an unenforceable fee agreement).
- The only exception to the above rule is if plaintiff can prove fraud, collusion, malice or bad faith.
- Common Law Fraud/Conversion
- A client’s fraud is not easily imputed to an attorney. However, a fraudulent scheme that is dependant upon an attorney’s services can lead to common law fraud liability. See Golden First Mortgage Co. v. Berger, 251 F,Supp.2d 1132 (E.D.N.Y. 2003) (attorney who represented both buyer and corporate seller of mortgage loans at several real estate closings can be liable for fraud where specific allegations indicate that his office notarized forged closing documents).
- Malicious Prosecution/Abuse of Process
- These torts involve misuse of the legal system, so even though such claims are rare, attorneys are targeted in some of these suits. Era Realty Co. v. RBS Properties, 576 N.Y.S.2d 831 (2nd Dep’t 1992) (attorney may be liable for both abuse of process and conversion for executing on default judgment entered by a court lacking subject matter jurisdiction);
- NYS Judiciary Law Section 487
- Section 487 of New York’s Judiciary law prohibits all New York attorneys from engaging in deceit that deceives any party or the Court in a pending Court proceeding. The statute also provides treble damages for violations of the statute. The Statute provide that an attorney who “[I]s guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party…is guilty of a misdemeanor, and in addition to the punishment prescribed therefore by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action.”
- While some courts require a pattern of deceitful activity, others have held that one instance of deceit is enough to sustain liability. Guardia Life Ins. Co. of America v. Handel, 596 N.Y.S.2d 804 (1st Dep’t 1993) (insurance carrier stated Section 487 claim stated where attorney relied on fraudulent embalming certificate in support of an application for a declaratory judgment that insurance carrier’s autopsy demand was unreasonable); Fields v. Turner, 147 N.Y.S.2d 542 (N.Y. Sup. Ct. 1955) (false information in affidavit used to procure an arrest warrant subjects attorney to liability); Trepel v. Dippold, 04 Civ. 8310 (DLC) (assistance in helping client remove attachable assets from the jurisdiction subjects attorney to Section 487 liability, where attorney told judge that client was instructed not to remove any such assets).
- A particular area of concern is when an attorney commits or suborns perjury. New York City Transit Authority v. Morris J. Eisen, P.C., 715 NYS2d 232 (1st Dep’t 2000) (knowing use of perjured testimony subjects attorney to common law fraud claim and potential treble damage liability under Judiciary Law Section 487); NYAT Operating Corp v. Jackson Lewis, 741 N.Y.S.2d 385 (Sup. Ct. NY County 2002) (where allegation is that attorney committed perjury in deposition testimony, Section 487 liability attaches).
- OTHER NON-CLIENT LIABILITY
- Duty to Spouses
- Jordan v. Lipsig, Sullivan, Mollen & Liapakis, 689 F.Supp. 192 (S.D.N.Y.) (where lawyer did not represent husband, but represented wife in medical malpractice claim, husband could sue firm for the loss of his potential claim for loss of consortium). The Court reasoned that a spouse “should reasonably be able to rely on the representation afforded to the injured spouse to inform him or her of his or her potential derivative claims of loss of consortium.” The Court relied on the derivative nature of loss of consortium (i.e., there is no claim absent the spouse’s malpractice claim, where the statute of limitations was missed), but query whether there are other circumstances where a client’s spouse can expose a law firm to malpractice liability.
- Duty To Foreseeable Third Parties
- In Estate v. Ginor v. Landsberg, 960 F.Supp. 661 (S.D.N.Y. 1996), the Court found that an attorney who represented a general partner and a limited partnership had no duty to a limited partner to disclose information regarding sale of partnership properties. No liability.
- Many attorneys volunteer their services. This may or may not create an attorney-client representation, but even if it does not, a duty of care may arise. In Schwartz v. Greenfield Stein & Weisinger, 396 N.Y.S.2d 582 (Queens Co. 1977), attorney volunteered to file and perfect plaintiff’s security interest in personal property. The attorney failed to do so, relegating plaintiff to general creditor status. The Court ruled against attorney, conceding that there was no attorney/client relationship but citing to general tort law for the proposition that one who gratuitously performs a duty can be held liable for negligence for failing to exercise due care.
- Law firms often prepare opinion letters on behalf of their clients which will be relied upon by various third parties. The Court of Appeals in Prudential Ins. Co. of America v. Dewey Ballantine, 80 N.Y.2d 377 (1992) made clear that attorneys can be held liable for negligence by third parties when attorneys know said third parties will rely on an opinion letter. In that case, Dewey Ballantine prepared an opinion letter that a lender relied upon in extending credit to Dewey’s client-borrower. However, under the facts of that case, the Court found no breach of the duty of care, since the primary misrepresentation (i.e., a sum certain dollar amount of security) was the subject of several disclaimers in the opinion letter at issue.
- In Crossland Savings, FSB v. Rockwood Ins. Co., 700 F.Supp. 1274 (S.D.N.Y. 1988) Judge Leval ruled that attorneys can be liable to a third party loaner for an opinion letter addressed to that third party that misrepresented that (1) that limited partners had made a “paid-in investment”, and (2) said limited partners were all persons of substantial means who would be able to fulfill their obligations under investor notes.
- Duty to Spouses
The common thread running through many of these cases is the attorney who overreaches while furthering the goals of the less-than-savory client. The old adage is that if you sleep with excrement you will wind up smelling like excrement. Understand your client’s real goals (which may be less-than-obvious), and be especially wary of the client who views the representation as a means to avoid an obligation or deceive others. Also take special care with financially-troubled clients.
Daniel L. Abrams
September 26, 2005