Presentation on theme: "Ch. 5 Duties to Nonclients A. Privity of Contract: Traditional Obstacle to Recovery (text 133-39) 1.Primacy of Duty to Client (& Successors in Interest,"— Presentation transcript:
Ch. 5 Duties to Nonclients A. Privity of Contract: Traditional Obstacle to Recovery (text 133-39) 1.Primacy of Duty to Client (& Successors in Interest, e.g., Trustee in B’y, P.R./Ex’r, Merger or Assignee of rights/duties)
Ch. 5 Duties to Nonclients A. Privity: Traditional Obstacle 2. Partial Demise of Privity (Exceptions): a.Prospective Clients (Rstmt §16) b.Tort or Contract or Fiduciary Law: i. Misrepresentation/Fraud ii. Intended Beneficiaries (+ foreseeable) iii. In representing fiduciaries iv. Malicious prosecution c. Statutory liability ( FDCPA; contrast federal & state securities law; §10b-5 Central Bank, only if “primary liability”)
B. Fraud on Nonclients Rstmt §56: Lawyers generally risk same civil liability as others under similar circumstances Fraud/Deceit (claims asserted by nonclients or clients) Elements: 1.Material misrepresentation 2.Scienter (knowledge of falsity or reckless disregard for truth) 3.Intent to induce reliance 4.Justifiable reliance 5.Damages
Misrepresentation text at 141-44 Materiality (defined, Rstmt Torts § 526, to include both objective & subjective test) Usually statement of existing fact (sometimes statement of intent or opinion) – Ambiguous statements – Half-truths & nexus requirement – False statement of intent Nondisclosure (silence) if duty to speak because of fiduciary relationship; to correct prior statement now known to be incorrect; facts basic to transaction or not reasonably discoverable
Fraud: Fact vs. Opinion Distinctions between assertions of facts and mere opinion? Intentions? – Puffing S/ assertions re attorney qualifications and expertise; time/effort and value of services? -Words of qualification (“more or less”; implied statement of fact re margin of error) -Implicit statements of fact Special circumstances may justify reliance on opinion or prediction – Value of property, legal significance of document (implicit statements of fact) – Statements of law Foreign law (outside home jurisdiction) Implicit assertion of fact (code/zoning standards) Expert opinion
Fraud Justifiable Reliance: in fact & reasonable – Policy: although caveat emptor, law protects reliance on affirmative misstatement (e.g., insurance policy limits; express assurances) – Not reasonable if obvious danger signal (red flag) Damages – Direct (either “benefit of bargain” or “out of pocket” – Consequential (physical, property or reputational harm; maybe emotional distress)
Problem 5-1 The Scaffolding Rental Business text at 151-52 Agreement of Understanding: Ned, S of Easy Up to receive 15,000 shares Baron Building Performance of disclosures required before closing: -Baron, through L Linus, balance sheet ($2M net worth) - Ned, through L Nancy, “no pending litigation”
C. Deceptive Trade Practices Acts DTPA: local (state) consumer protection laws; great variations in 1) prohibited acts; 2) remedies; 3) enforcement powers Commonly require: “knowingly engaged in deceptive trade practice …”…”in the course of” …[business or occupation” …[with significant public impact] Courts in Colorado, Connecticut, New Jersey, Texas, Washington have applied local DTP laws to lawyers See, e.g., Latham, text at 153 (misrepresentation) Enforcement powers: ∙ Attorney General or Consumer Protection Agency (broad injunctive & other enforcement powers, if exercised); ∙ Private right of action (statutory damages, attorneys’ fees) OK Consumer Protection Act, tit. 15 §§721 et seq. ∙ Enforcement powers: AG; other businesses affected; consumers ∙ Different “prohibited acts” subject to private enforcement actions ∙ To date, no enforcement action against lawyers or nonlawyers relating to law-related services N.B. Waiting in the wings: unauthorized practice enforcement actions
D. Negligent Misrepresentation text pp. 156-161 §552 Info. Negligently Supplied for Guidance of Others, Rsmt of Torts (2d) (1) “One who, in the course of” business, prof’n or other transaction where pecuniary interest]… “supplies false information for the guidance of others… is subject to liability for pecuniary loss” caused by justifiable reliance IF fails to exercise reasonable care or competence
§552 (cont’d) (2)[liability limited to] (a)& (b) [intended or foreseeable recipients; intended to influence]; (b)& (c) [liability of one under public duty to provide reliable information to protected class]
Rstmt LGL §§51-52 §51(2) to a nonclient when and to the extent that… (a) L or Cl invited reliance, which occurred in fact; and (b) nonclient not too remote to be entitled to protection (Palsgraff) §52 illus. 2, based on Greycas v. Proud, 826 F.2d 1560 (7 th Cir. 1987)…[re client’s private instructions to lawyer] “Lawyer might have avoided liability to Buyer by declining to provide the opinion by making clear to Buyer that Lawyer had relied entirely on Client for information about liens.”
Problem 5-2 text at 160 The Tax Shelter Opinion Letter Did L’s tax shelter opinion letter contain a misrepresentation? Justified reliance by all investors? Liability for – fraud? – negligent misrepresentation? Significance re nonclients (privity or near-privity)
E. Claims Based on Representation of Fiduciaries §51(4) Rstmt LGL (a) L’s client is T’ee, G’dn, Ex’r, or Fidcuciary (b) L knows that appropriate action by L necessary w/r/t matter w/in scope of repre’n to prevent or rectify the breach of a fiduciary owed by the client to the nonclient, where (i) br is a crime or fraud or (ii) L has assisted or is assisting the breach; [and] (c) + (d) [qualifiers]
Bonnie HeirofHeir v. L for P.R. of 1 st estate SIMPLIFIED 1983 Diane dies intestate, survived by 2 aunts A&B. Diane’s good friend Penny, serves as Personal Representative, and Bob L represents P.R.. While her probate proceeds, A&B also die intestate. A is survived by son & daughter. B is survived by 2 daughters. 1992 Final Decree entered; $1/2M available for distribution & a few oil & gas interests. ½ distributed to A’s estate, but 0 distributed to B’s estate. B’s heirs never received copy of Decree; ½ $ remained in estate. 2007 Betty, B’s daughter, learns her name is listed as owner of mineral rights (from Diane’s estate); locates record with Bob Lawyer’s name; Bob can’t remember much; said IRS seized all remaining assets to pay overdue taxes.
Betty v. HeirsHeir Betty hires L to investigate. Diane, the P.R. of Millie’s estate also says IRS took assets, but had no documentation. Further investigation showed B and & her family (living in Cal.) were long estranged from A and A&B’s family of origin. 2009B’s L learns that Bob L revealed Diane, the P.R., had deceived him; there was no IRS lien; instead she kept the money and eventually lent Bob $75,000 to buy a house. In Betty’s litigation against Diane and Bob L, it is revealed that Bob and Diane were also cousins. WHAT CLAIMS DOES BETTY HAVE V. DIANE, THE P.R. & BOB L?
F. Funds and Property of Nonclients Problem 5-3 Disputed Settlement Proceeds Did L violate ABA RPC 1.15? If so, does that give rise to c/a by Nadia v. L? Other legal basis for Nadia to sue L? – Negligence in handling funds? Was N a client? If so, was L’s conduct demonstrate a conflict of interest? – §51(3)? What about §51(4)? – Fraud? Aiding & abetting fraud? – Tortious interference with contract? What L SHOULD HAVE DONE?
H. Duties to Other Lawyers Beck v. Wecht (CAL. 2002) Difficult facts present question whether one L [REFERRING LAWYER] may sue another for br of fiduciary duty on theory that other’s malpractice reduced or eliminated the fees expected by P L. Fee splitting arrangement between referring L, working L and local counsel. During trial, CLIENTS told referring and working counsel they wanted to settle ($6M had been offered before), but working counsel DID NOT SO! DEFENSE VERDICT.
Holding No, Referring lawyer could not recover lost fee because of working lawyer’s malpractice. Court establishes bright-line rule refusing to recognize fiduciary duty owed between associated lawyers. Rationale: Public policy, to avoid possible conflict of interest that could deter L from determining the best interests of the client because of risk of potential liability to another lawyer.
Litigation Privilege “[A]ny statement made during judicial proceedings pertinent to the issues before the court is absolutely privileged and may not give rise to [defamation] liability.” text at 177 Policy: allow zealous advocacy. Cautions: litigation privilege is creature of state law and its application is not uniform. – E.g., when L goes beyond advocacy, cts may sanction Ls, uphold defamation damages awarded by jury. Quigley v. Rosenthal, 327 F.3d 1044 (10 th Cir. 2003)(upheld damages against civil rights L who defamed members of homeowners ass’n by labeling them anti-semitic at press conference during trial) L for Anna Nicole Smith allegedly defamed son of her billionaire deceased husband; matter settled after $multimillion verdict
Litigation Privilege May apply to other types of private or public hearings involving exercise of judicial or quasi-judicial powers, e.g., arbitration. Look for qualifications/limits May apply to pre-litigation communications, e.g., with L for opposing party. Talking to media: cases split. E.g., Kennedy v. Zimmermann (IA 1999)(allowed defamation action to proceed against lawyer who restated allegations in complaint to reporter) MESSAGE: CHECK LOCAL LAW BEFORE YOU SPEAK OR CARRY “SPEAKING EVIDENCE” IN PUBLIC PLACES, e.g., in halls of court. there is no litigation privilege available for transactional matters.