Liability to Non-Clients: How to Mitigate Risk, 0917 COBJ, Vol. 46, No. 8 Pg. 18

• Author: JARED R. ELLIS, J.

46 Colo.Law. 18

Liability to Non-Clients: How to Mitigate Risk

Vol. 46, No. 8 [Page 18]

The Colorado Lawyer

September, 2017

August, 2017

WHOOPS—LEGAL MALPRACTICE PREVENTION

JARED R. ELLIS, J.

Claims by non-clients represent a growing area of potential liability for attorneys. One treatise states that non-clients are responsible for 13 to 21% of all claims against lawyers.¹ Because the data it relies on is from the 1980s, it is quite possible that this number is even larger today.

In its most recent statistical analysis, the ABA’s Standing Committee on Lawyers’ Professional Liability reported that estate, trust, and probate attorneys will soon generate the most claims from non-clients. Tis is because attorneys advising the baby boomers are encountering claims by beneficiaries asserting all manner of claims to their parents’ accumulated wealth.²

There are a number of other reasons why a non-client might file a claim against an attorney. Some claims result from a party seeking revenge against their opposing party’s lawyer for an unfavorable outcome in a case. In particular, domestic relations attorneys may be beset with opposing party claims for aiding and abetting in the former spouse’s fraud and chicanery. Other claims are fled because lawyers are perceived as “easy targets.” It is widely—but perhaps wrongly—believed that jurors tend not to like lawyers. Additionally, lawyers are often perceived to be risk averse and to possess “deep pockets,” either because they have insurance coverage or because they are believed to be wealthy.

Given the potential exposure to non-clients, this article seeks to help practitioners identify some areas of potential risk that exist in light of Colorado precedent. It also identifies a few steps that practitioners can take to mitigate liability to non-clients.

An Overview of Potential Claims by Non-Clients

Colorado follows the “strict privity rule” with respect to attorney liability to third parties.³ Tis rule provides that, in light of the fiduciary nature of the attorney–client relationship, “an attorney’s obligation is generally to his or her client and not to a third party.”⁴ Under this rule, an attorney’s professional liability is typically limited to clients,⁵ and attorneys generally “have no duty to act for the benefit of those who are not clients.”⁶

In the absence of an attorney–client relationship, Colorado courts have typically limited an attorney’s liability to “a narrow set of circumstances in which the attorney has committed fraud or a malicious or tortious act, including negligent misrepresentation.”⁷ Te reasons for limiting attorney liability to non-clients include (1) preventing attorneys from being “potentially liable to an ‘unforeseeable and unlimited number of third parties’”⁸ and (2) “the adversarial nature of litigation, in which ‘injury to a third person often is the direct, intended objective of the attorney’s representation.’”⁹ Sometimes attorneys can be liable to non-clients for “fraud or a malicious or tortious act.”¹⁰ Thus, implicitly, lawyers may be liable to non-clients for claims of fraud and torts requiring proof of malice, such as malicious prosecution.^[11] Colorado courts have also recognized that lawyers may be liable to non-clients for intentional torts such as defamation,¹² false imprisonment,^[13] intentional infliction of emotional distress,^[14] intentional interference with contract,¹⁵ and intentional interference with a prospective contractual relationship.¹⁶ Te same is true in many other jurisdictions.¹⁷

When the conduct that provides a basis for claims against the lawyer is based on statements made by the lawyer in the course of litigation, a lawyer may be protected by the “litigation privilege.”¹⁸ Under Colorado law, that privilege protects a lawyer¹⁹ from liability for defamation based on statements related to the subject matter of litigation that are made during the course of the litigation.²⁰ The privilege also extends to “other non-defamation claims that stem from the same conduct,” such as claims for intentional infliction of emotional distress.²¹

Although no published Colorado decision has extended the protections offered by the litigation privilege to claims of fraud by non-clients, some other jurisdictions have done so.²² Te Colorado Court of Appeals has, however, limited the scope of the protection provided by litigation immunity by clarifying that statements made before litigation is commenced are only protected if they are “related to prospective litigation” and the litigation is “contemplated in good faith.”²³

In addition to being liable to non-clients for intentional torts, Colorado attorneys face potential liability to non-clients for negligent misrepresentation. The Colorado Supreme Court has held that an attorney who prepared an opinion letter expressing the opinion that underlying litigation lacked merit was liable to a non-client who relied on the letter in purchasing notes under a theory of negligent misrepresentation after the litigation succeeded and the obligor defaulted on the notes.²⁴ Subsequently, the Supreme Court clarified this holding to reflect that, while negligent misrepresentation claims were most likely to occur in circumstances in which an attorney was preparing an opinion letter, it had not explicitly limited negligent misrepresentation claims to that context.^[25] However, the Court rejected a negligent misrepresentation claim asserting an attorney had misrepresented the applicable limitations period for a civil lawsuit, concluding that the misrepresentation was not made for the guidance of others in a “business transaction,” a necessary element of a negligent misrepresentation claim.²⁶

There are two significant areas in which the liability of attorneys to non-clients still appears to be evolving. First, an attorney’s liability to non-clients for claims of civil conspiracy under Colorado law remains unclear. Te Court of Appeals declined to recognize a claim for conspiracy between an attorney and his client, noting the general rule that “an attorney acting within the scope of his employment cannot conspire with his client unless the attorney has also acted for his sole personal benefit.”^[27]However, the Court also recognized a line of decisions holding that an attorney could be liable for conspiring with his client if the attorney engaged in fraud.²⁸ Because the plaintiff had not alleged that the defendant attorney acted outside the scope of his legal representation or committed fraud, the Court affirmed the dismissal of the conspiracy claim.²⁹

Second, an attorney’s liability to non-clients for aiding and abetting the tortious conduct of a client^[30] is unsettled. Under the Restatement (Second) of Torts, one is subject to liability for the tortious conduct of another “if he knows that the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other. . . .”^[31] However, Colorado courts have not decided whether, or to what extent, an attorney may be held liable for aiding and abetting a client’s conduct. Te Colorado Supreme Court actually declined to address whether an attorney may be liable to non-clients for aiding and abetting a client’s breach of fiduciary duties.³² While the Colorado Court of Appeals did suggest an attorney could potentially be liable for aiding and abetting a client’s breach of fiduciary duties, it held that such a claim failed where there was no breach of fiduciary duty by the client.³³

It is also worth mentioning that, in addition to the various theories of liability outlined above...