The "I Am Not Your Lawyer" Case

In cases of confusion over client identity, courts tend to resolve doubt against the attorney, thereby imposing upon the attorney the burden of clarifying whom he does and does not represent. When an attorney-client relationship is inferred, there is almost always an attendant issue of conflict of interest because, by necessity, the attorney was serving the interests of his intended client rather than those of the unintended client.

Cases of real or professed confusion over client identity, pitting the unintended or “putative” client against the attorney who denies the existence of an attorney-client relationship, have become so common as to merit their own brand: The “I am not your lawyer case.”  The year 2010 was no stranger to such cases, which reprised familiar and recurring “I am not your lawyer” risk factors, including:

• the putative client was not separately represented
• the putative client’s interests were similar to those of attorney’s intended client, or the putative client stands to benefit from a transaction or has other community of interest
• a contractual or other close relationship existed between the client and putative client
• the putative client was a constituent of closely held corporate partnership or joint venture client
• there was sharing of confidential information with the putative client
• there were direct communications between the attorney and putative client
• there was reliance by the putative client
• the intended client was a fiduciary of the putative client

Relationships “Sufficiently Approaching Privity”
In the trusts and estates area, several courts in 2010 extended the attorney-client relationship to relationships “sufficiently approaching privity.” For example, in Schneider v. Finmann, the court held that an estate representative is in “privity, or a relationship sufficiently approaching privity,” with the estate planning attorney and may bring a malpractice claim against an attorney who negligently provided estate planning services to the decedent. 933 N.E.2d 718, 719-21 (N.Y. Ct. App. 2010). The court recognized the general rule that a third party, without privity, cannot maintain a claim against an attorney for malpractice absent fraud, collusion, malicious acts, or special circumstances. Many courts had applied that rule to estate planning malpractice suits by the estate’s personal representatives and beneficiaries, leaving the estate without recourse against a lawyer who planned the estate negligently, but the Schneider court changed course and allowed such a claim by the estate representative. Strict privity, however, “remains a bar against beneficiaries’ and other third-party individuals’ estate planning malpractice claims absent fraud or other circumstances.” Id. at 721.

Perez v. Stern concluded that an attorney retained by a decedent’s estate to prosecute a wrongful death claim may be liable to the decedent’s minor children for malpractice and that the limitations period was tolled during the children’s minority. 777 N.W.2d 545, 550–551 (Neb. 2010). Even though the attorney was not in privity with the children, the court held that the attorney owed the children an independent duty of care. The court identified the following factors for determining whether an attorney owes a legal duty to third parties:

(1) the extent to which the transaction was intended to affect the third party, (2) the foreseeability of harm, (3) the degree of certainty that the third party suffered injury, (4) the closeness of the connection between the attorney's conduct and the injury suffered, (5) the policy of preventing future harm, and (6) whether recognition of liability under the circumstances would impose an undue burden on the profession.

Id. at 550–551. Similarly, in Branham v. Stewart, the court, as a matter of first impression, concluded that an attorney hired by a minor’s next friend and statutory guardian to pursue a minor’s tort claim has an attorney-client relationship with the minor. 307 S.W.3d 94, 94 (Ky. 2010).

In contrast, the court in Droz v. Karl concluded that a trustee could not pursue malpractice claims against an attorney for alleged negligence in setting up a trust. 2010 WL 3502762 (N.D.N.Y. Sept. 8, 2010). In that case, the attorney represented the settler of the trust, not the trustee, and the court dismissed the trustee’s claims because there was no attorney-client relationship, or a relationship so close as to approach privity, between the trustee and attorney.

Similarly, in Johnson v. Hart, the court held that an attorney retained to represent the estate owed no duty to the estate beneficiary. 692 S.E.2d 239, 243–44 (Va. 2010). The court rejected the argument that the plaintiff, who was the sole beneficiary of the estate and had previously been the estate representative, could pursue a malpractice claim against the estate’s attorney in her individual capacity as an assignee, as legal malpractice claims cannot be assigned under Virginia law. Accord New Hope Methodist Church v. Lawler & Swanson, P.L.C., 791 N.W.2d 710 (Iowa App. 2010) (lawyer for executors of estate has no duty to provide notices to legatees under will; estate and beneficiaries are “incidental, not intended, beneficiaries of that attorney-personal representative relationship”).

Duties to Entities or Persons with Related Interests
In GSI Commerce Solutions, Inc. v. BabyCenter, LLC, the Second Circuit held that an attorney’s duty of loyalty to a corporate client may be adversely affected by representation adverse to the corporation’s affiliate. 618 F.3d 204 (2d Cir. 2010). Due to the substantial overlap in the operations of the client corporation and its non-client affiliate, including a shared legal department that participated in both lawsuits, the relationship between the two entities was exceedingly close. Thus, the court affirmed the disqualification of the law firm from representing a party adverse to the non-client affiliate.

Attorneys may also owe limited duties to non-clients when they represent a person or an entity who, in turn, is in a position to substantially impact another party’s rights and interests. In Pagliara v. Johnson Barton Proctor & Rose, LLP, the plaintiff, Pagliara,was a partner of Capital Trust, which was licensed with NBC Securities (NBCS). 2010 WL 3940993, *8 (M.D. Tenn. 2010). One of Pagliara’s investment clients threatened to sue NBCS and Pagliara to recover approximately $16,000 in losses allegedly due to Pagliara’s bad investment advice. Under the terms of the Capital Trust-NBCS licensing agreement, NBCS had the right to retain its own counsel and to settle claims without Capital Trust’s prior approval. The defense counsel retained by NBCS settled the claim in advance of suit for $30,000, which triggered regulatory reporting requirements. Pagliara later claimed that NBCS settled the claim for an amount that triggered reporting requirements to harm his reputation.

Although conceding there was no attorney-client relationship, Pagliara claimed that counsel for NBCS breached fiduciary duties owed to him because they knew and intended to damage his reputation by settling the case for an amount triggering reporting requirements. The court noted that Pagliara became dependent on NBCS’s counsel by virtue of the license agreement, which permitted NBCS to select its own counsel, and that “[t]his created a fiduciary duty on the part of Johnston Barton to undertake NBCS’s defense in good faith and to not intentionally and gratuitously harm Pagliara.” Id. at *9 (citations omitted).

Pagliara is consistent with section 51 of the Restatement (Third) Governing Lawyers, which provides that when a lawyer represents a client who is a fiduciary, the lawyer owes a duty to the beneficiary only if such a duty would not significantly impair the attorney’s performance of his obligations to the client.

Duties to Constituents 
Kenny v. Murphy provides a familiar example of the dangers of representing a closely held venture without contemporaneous and explicit clarification of the identity of the client. 919 N.E.2d 715 (Mass. App. Ct. 2010). In that case, Kenny approached his friend Murphy—an attorney who had done work for him in the past—about an investment opportunity. Murphy declined to invest but decided to represent the joint venture and induced his brother to invest in the venture. Thereafter, Murphy prepared the documents for the joint venture and assisted with obtaining a construction loan. Pursuant to the joint venture agreement, Murphy’s brother received a security interest in the development and on Kenny’s personal residence. Murphy never told Kenny that he needed his own attorney to review the paperwork or to appear at the bank closing. Kenny was dissatisfied with the terms of the deal, however, and consulted another attorney, Crowe, to review the paperwork. Crowe recommended changes, which Murphy incorporated into the documents. Kenny never paid Murphy for any legal advice; however, he did pay Crowe.

The deal was not profitable and, after selling the property at a significant loss, Kenny sued Murphy for legal malpractice. Largely because Kenny sought and paid for the services of another lawyer, the court concluded that no reasonable jury could have found that Kenny reasonably relied upon Murphy to represent him in matters pertaining to the venture. Nevertheless, the court refused to dismiss Kenny’s claims against Murphy. Relying upon cases holding that partnership lawyers may owe duties to the individual partners, the court found genuine issues of material fact surrounding whether Murphy breached his duty to the joint venture. Although Murphy borrowed from partnership cases, it is notable that the case involved a joint venture, which usually lacks legal status separate and apart from the joint venturers.

Relationship Inferred from Common Interests and Contacts
In Max-Planck-Gesellschaft Zur Foerderung der Wissenschaften E.V. v. Wolf Greenfield & Sacks, PC, the court found an attorney-client relationship between the attorneys for a patent application owner and the co-owners. 2010 WL 3553988, *6 (D. Mass. 2010). The court inferred the relationship based on the following factors: (1) the co-owners executed a power of attorney in the law firm’s favor; (2) the law firm sent the co-owners confidential draft documents pertaining to the patent applications and sought recommendations for changes to the drafts and comments on the proposed strategy; (3) the co-owners sent letters to the law firm, requesting legal advice, and the law firm responded; and (4) the firm prosecuted the patent applications for the benefit of its client and non-clients, and, in an application to the patent office, identified itself as “Applicants’ Attorney,” rather than as counsel to only one of the applicants.

Although the file contained a letter disclaiming representation of the co-owners, the inference of an attorney-client relationship was not negated because the letter, sent nearly four years after the firm began rendering services, was the first time the firm made any outright statement disclaiming representation. The case underscores the importance of contemporaneous “I am not your lawyer” disclaimers. Post hoc disclaimers typically are given little or no weight.

Limitations Periods in “I Am Not Your Lawyer” Cases
As noted above, the court in Perez v. Stern concluded that the limitations period for a malpractice claim by an estate representative was tolled during the minority of the estate beneficiaries. 777 N.W.2d 545, 550–551 (Neb. 2010). In addition, one court has concluded that the limitations period for malpractice claims does not necessarily govern claims by a third-party non-client. In Bona Fide Demolition and Recovery, LLC v. Crosby Const. Co. of Louisiana, Inc., the plaintiff filed suit against a company and its attorney, alleging they had engaged in a fraudulent scheme. 2009 WL 5174742 (E.D. La. Dec. 21, 2009). The court concluded that the statute governing the limitations period for legal malpractice claims did not apply, as it governed only actions “arising out of an engagement to provide legal services,” whereas plaintiff’s claims arose out of alleged intentional and negligent misrepresentations and breach of contract. By contrast, in Anderson v. West Marine, Inc., the court held that a non-client’s claims against an attorney were subject to the limitations period for legal malpractice claims. 2009 WL 3808341 (Cal. App. 2d Dist. Nov. 16, 2009).

Lessons Learned from 2010
In 2010, “I am not your lawyer” risk factors arose frequently in trusts and estates and other contexts in which the attorney represented a fiduciary who, in turn, owed a fiduciary duty to others. Risk factors also arose in the organizational context, where the attorney represented a two-person or closely held entity or venture. Rule 1.13 of the Model Rules of Professional Conduct adopts the “entity theory” of organizational representation, by which the attorney is presumed to represent the entity, not its constituents. However, many malpractice cases arise from the failure to honor this distinction or from confusion (real or professed) on the part of the entity’s constituents. Corporate constituents may not understand that the attorney represents the entity only. They may perceive the attorney as representing the “team.” Because the interests of the client (the entity) and its constituents may conflict materially, blurring of this distinction poses serious potential for ethical and malpractice exposure.

Many of the “I am not your lawyer” cases discussed above could have been easily avoided with two simple preventative measures: (1) an engagement letter, and (2) the “I am not your lawyer” letter. The engagement letter remains a tried and true vehicle for achieving definition, clarity, and certainty in the attorney-client relationship. Lawyers should aspire to use these letters in every representation. The letter should clearly define who you represent and, when necessary, who you do not represent. Further, during the course of the relationship, it is important that an attorney remain sensitive to signs that a non-client may have formed a belief that the attorney represents him. Whenever that happens, an attorney should immediately disabuse the non-client of the erroneous notion in writing with an “I am not your lawyer” letter. This letter is simple to write and can avoid years of expensive and heart-wrenching litigation.

James A. Brown and Carey L. Menasco are shareholders with Liskow & Lewis, PLC in New Orleans, Louisiana.