LEGAL MALPRACTICE ACTIONS are typically lawsuits brought by clients against their attorneys. The elements of the claim are identical to those of a common law negligence action: duty, breach, proximate cause and damages. When an attorney-client relationship is formed, a duty of reasonable care to the client arises automatically. Thus, in legal malpractice actions, proof of an attorney-client relationship is typically required and is synonymous with proof of the existence of a duty itself.

During recent years, the ranks of plaintiffs in legal malpractice actions have grown to include many third parties who were never clients, and who can make no claim to the protections, or benefits, that arise from the attorney-client relationship. These cases seek to extend the lawyer’s duty – and potential liability – to parties who have neither retained the lawyer nor entered into a contractual relationship for professional services. In the recent case of Alexander MacMillan et. al. v. Brackett Scheffy et. al., Case No. 2000-216 (12/24/2001), the NH Supreme Court placed important limitations on the scope of a New Hampshire lawyer’s duty to a non-client. The MacMillan decision and the earlier decision of Simpson v. Calivas, 139 N.H. 1 (1994) now provide us with a well-developed set of guidelines for identifying the circumstances under which a broader duty to third parties may arise.

When we, as lawyers, enter into an attorney-client relationship, we assume a duty of care, and certain fiduciary duties to our client. It is precisely these duties – and in particular a lawyer’s paramount duty to "zealously" pursue the interests of the client over all others – that have made courts historically reluctant to extend an attorney’s liability to a broader universe of third parties who may be affected by the lawyer’s work. Instead, courts imposed a "privity rule" on legal malpractice actions, allowing only clients to bring negligence actions against lawyers. In 1994, our Supreme Court created the first exception to the privity requirement for legal malpractice actions in New Hampshire.

Simpson v. Calivas, 139 N.H. 1 (1994), involved claims of negligence and breach of contract brought by Simpson, one of the beneficiaries in his father’s will, against Calivas, the lawyer who had drafted the will for Simpson’s father. The case arose from a dispute between Simpson and his stepmother over will language that left Simpson all real estate except for a life estate in "our homestead located at Piscataqua Road, Dover, New Hampshire," which went to Mrs. Simpson. Simpson argued that his father intended to give his second wife a life estate in the family home only. Mrs. Simpson contended that the life estate included the surrounding 120 acres of real estate.

After an adverse ruling in probate court that awarded a life estate in the real estate to his stepmother, Simpson paid $400,000 for the life estate and sued Calivas to recover the money. In the malpractice action, he used notes of the drafting attorney and testimony from friends of the decedent to prove the true intent of his father.

Because Simpson had never been Calivas’ client, the defense moved to dismiss based on the absence of a contractual or common law duty. The trial court agreed, dismissing the action on this and other grounds. On appeal, the Supreme Court reversed and established New Hampshire’s first exception to the privity rule for legal malpractice actions: "The critical issue, for purposes of this appeal, is whether an attorney who drafts a testator’s will owes a duty of reasonable care to intended beneficiaries. We hold that there is such a duty."

The Court’s holding was based primarily on the foreseeability of harm to the beneficiaries that will result from a failure to capture true testamentary intent in drafting a client’s will. The attorney is hired to carry out the client’s testamentary scheme. If the drafting is ambiguous, that scheme is threatened – with immediately foreseeable consequences to the intended beneficiaries. Relying on extensive case law from other jurisdictions, the Court concluded that: "...although there is no privity between a drafting attorney and an intended beneficiary, the obvious foreseeability of injury to the beneficiary demands an exception to the privity rule."

The importance placed by the Court on the foreseeability of harm was highlighted in Simpson when the Court refused to follow a separate line of authority, adopted in several states, that limits a lawyer’s third-party liability to situations in which the intent set forth in the will is thwarted – as, for example, when a will is improperly executed or a bequest fails due to the Rule Against Perpetuities:

Under such a limited exception to the privity rule, a beneficiary whose interest violated the rule against perpetuities would have a cause of action against the drafting attorney, but a beneficiary whose interest was omitted by a drafting error would not.... We refuse to adopt a rule that would produce such inconsistent results for equally foreseeable harms.

In the recent MacMillan ruling, the Court was asked to extend the Simpson holding to a real estate transaction so as to create a duty of care extending from the seller’s attorney to the buyer. The Court refused, and in its ruling identified at least two additional factors that will be important in analyzing future claims of third-party liability.

The key players in the MacMillan case were the Dicksons (purchasers of residential real estate in Sutton); the Toys (sellers of the real estate); and Mr. Scheffy, attorney for the Toys and drafter of the deed for the transaction. (MacMillan was the trustee of a trust that acquired the property from the Dicksons.) The property was subject to a restrictive covenant that prevented the owner from building on the rear portion of the land. Scheffy did not include the restrictive covenant in the deed to the Dicksons. They discovered the restriction only after purchase, and brought a lawsuit against the sellers (for breach of warranty covenants) and against the sellers’ attorney, Scheffy (for negligence in the drafting of the deed).

At trial, Scheffy acknowledged that the Dicksons were "the intended beneficiaries" of the deed that he drafted. The trial court directed a verdict against Scheffy on liability grounds. Despite the directed verdict on liability, the jury awarded damages only against the Toys, the sellers. Plaintiffs appealed, Scheffy cross-appealed, and the Supreme Court reversed, holding that Scheffy’s duty of care did not extend to the purchasers.

The Court noted Scheffy’s forthright acknowledgment that the purchasers were the "intended beneficiaries" of the deed; however, this concession (essentially an admission that harm was foreseeable) was not considered dispositive. Citing Illinois authority, the Court first held that "‘for a non-client to succeed in a negligence action against an attorney, he must prove that the primary purpose and intent of the attorney-client relationship itself was to benefit or influence the third party’". In MacMillan, the Court found "no evidence" in the record that the Toys’ "primary purpose of employing Scheffy to draft the deed was to benefit or influence the Dicksons."

Perhaps more fundamentally, the Court refused to find a duty extending from Scheffy to the purchasers because it would conflict with Scheffy’s duty of undivided loyalty to his own clients. The Court noted widespread recognition that real estate transactions are "adversarial in nature" and concluded that:

‘...(w)here a client’s interest is involved in a proceeding that is adversarial in nature, the existence of a duty of the attorney to another person would interfere with the undivided loyalty which the attorney owes the client and would detract from achieving the most advantageous position for his client....’(citation omitted). Thus, we decline to impose on an attorney a duty of care to a non-client whose interests are adverse to those of the client.

The potential for claims by third parties is limitless. Is an attorney who renders a legal opinion regarding a transaction liable to the non-client who requested the opinion from the client? Is the developer’s attorney liable to individual condominium owners for title problems caused by faulty legal work during the build-out process? Does a lawyer who conducts defective title work for a bank violate a duty to a non-client/purchaser who relies on that title work? Does a family lawyer who is negligent in the negotiation of child support while representing the mother in her divorce also violate a duty to the children?

The Court’s rulings in Simpson and MacMillan suggest that the answer to these and other questions will involve an analysis of the underlying purpose of the attorney/client relationship; the foreseeability of harm; and – perhaps most importantly – the potential that a finding of third-party liability will undermine an attorney’s paramount duty of undivided loyalty to his or her client.

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