Attorney Liability to Non-clients
| Publication year | 1988 |
| Pages | 1537 |
| Citation | Vol. 08 No. 1988 Pg. 1537 |
1988, August, Pg. 1537. Attorney Liability to Non-Clients
The law has long recognized the duty of care owed by an attorney to the client, and has imposed liability for willful, reckless or negligent violation of that duty. Historically, an attorney could avoid such an imposition of liability by contending that no attorney-client relationship ever existed between the attorney and aggrieved party and that, therefore, no duty of care was owed to that party.(fn1) Courts have held for many years that, absent fraud or collusion, attorneys could not be liable to parties other than their clients in an action arising out of their professional duties.(fn2) In fact, the U.S. Supreme Court stated in 1879 that, in the absence of special circumstances, attorneys cannot be held liable for the consequences of their professional negligence to anyone other than their clients.(fn3) The Court determined that privity of contract is a prerequisite to the bringing of an action, except in cases of a breach of duty owed to the general public, imminently dangerous actions and fraud.(fn4)
More recently, however, the strict requirement of privity of contract between the attorney and injured party has been eased in certain well-defined situations, and an attorney may be held liable to third parties for professional negligence.(fn5) Modern courts are finding that, in addition to the duty of care owed by an attorney to the client, an attorney owes a duty of care to third parties who are intended to benefit from the attorney's services to the client.
Colorado law in this area seems to be developing less rapidly than that of other jurisdictions. Although this article cites several Colorado cases which have considered attorney liability to non-clients, most authority comes from other states. However, Colorado attorneys should be aware of the trends developing in this area of the law so as to anticipate the courts' philosophies and decisions and to be able to make well-informed decisions in day-to-day practice.
Plaintiff's counsel in the California case of Norton v. Hines,(fn6) alleging professional negligence on the part of defendant's attorneys, asked the court to depart from the general rule that a cause of action against an attorney will not lie in favor of a non-client third party. Counsel cited Dillon v. Legg(fn7) in urging the court to apply what he called a "twentieth century concept of tort law,"(fn8) namely that foreseeability of injury to a third party, not privity of contract, should be the determining factor. The Dillon case states that the foreseeability of risk is most important in establishing the element of duty.(fn9)
The Norton court acknowledged that the strict requirement of privity of contract has been eased so that attorneys (and other professionals), in certain well-defined situations, have been held liable for negligence to a third party.(fn10) The court cited the seminal case of Biakanja v. Irving(fn11) as the first California case to recognize this concept. Biakanja was a case involving a notary public who prepared a will for his "client," but who negligently failed to have the will properly attested so that it was not admitted to probate. The California Supreme Court devised a test for determining liability to third parties:
The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, and the policy of preventing future harm.(fn12)
This "balancing test" philosophy of the Biakanja court has been cited and implemented by a number of different courts nationwide in the years following that landmark decision.(fn13)
Even prior to its creation of the Biakanja balancing test, the pioneering California Supreme Court had imposed liability against attorneys in favor of third parties under a third party beneficiary theory.(fn14) The court held that, in the event of attorney negligence, an aggrieved beneficiary has nowhere to turn
but to the attorney for compensation. The court recognized that "unless the beneficiary can recover from the attorney, the beneficiary suffers a wrong without a compensating remedy."(fn15) The court elaborated: "The duty which the attorney owes the beneficiary is separate and distinct from the duty owed the client; so, too, are the remedies for breaches of these duties."(fn16) This pronouncement by the California court seems to follow the rationale of Colorado and other courts that the law should allow everyone his day in court and provide a remedy for every legal wrong.(fn17)
Tangentially, courts have held that where an attorney assumes a fiduciary obligation, it applies to persons whom, though not strictly clients, the attorney has or should have reason to believe rely on him.(fn18) As can be expected, third parties seem to rely most heavily on an attorney's opinions and representations in real estate sales or lease transactions, and attorney liability to non-clients seems most prevalent in those types of situations.
The Louisiana Court of Appeals cited authority from nine other jurisdictions for its holding in Capital Bank & Trust Co. v. Core.(fn19) In this case, the attorney knew that a lender would rely on his title opinion by advancing funds on the strength of the opinion. The lender did not directly engage the attorney or pay any remuneration for the opinion. As a result, the lender had the right to a direct action against the attorney, either in contract or as a third party beneficiary, on allegations that the title opinion failed to reveal defects in title to property which decreased its value as security for the lender's loan.(fn20) The...
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