Westport Bank and Trust Co. v. Corcoran, Mallin and Aresco, 14307

• Decision Date: 31 March 1992
• Docket Number: No. 14307,14307
• Citation: 605 A.2d 862,221 Conn. 490
• Court: Connecticut Supreme Court
• Parties: WESTPORT BANK AND TRUST COMPANY v. CORCORAN, MALLIN AND ARESCO, et al.

Page 862

605 A.2d 862

221 Conn. 490

WESTPORT BANK AND TRUST COMPANY v. CORCORAN, MALLIN AND ARESCO, et al.

No. 14307.

Supreme Court of Connecticut.

Argued Oct. 30, 1991.

Decided March 31, 1992.

Richard J. Diviney, Westport, for appellant (plaintiff).

Arnold J. Bai, with whom were Andrew S. Turret, Bridgeport, and, on the brief, J. Jeffrey Coughlin, Milford, for appellees (named defendant et al.).

Before SHEA, GLASS, COVELLO, BORDEN and BERDON, JJ.

BORDEN, Justice.

The issue in this appeal is whether a lender may hold its attorney liable for a negligent title search and subsequent issuance of an erroneous title opinion letter to the lender when that attorney also represents the borrower. The plaintiff, Westport Bank and Trust Company, brought suit against the defendants, attorney John R. Mallin and the law firm of Corcoran, Mallin and Aresco, ¹ alleging, in count one, breach of its attorney-client contract with the defendants ² and, in count three, legal malpractice by the defendants. The trial court, Licari, J., granted the defendants' motion to strike the first and third counts of the plaintiff's amended complaint. The plaintiff appealed from the subsequent judgment, Spear, J., to the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 4023. We now reverse.

The complaint alleged the following facts. In January, 1988, the plaintiff approved the loan application of Charles L. Munigle, individually and doing business as MKP Westport (Munigle). The plaintiff issued a commitment letter to Munigle for a $225,000 construction loan subject to Munigle's granting a second mortgage to the plaintiff on two adjoining parcels of land that he owned, known as lots 5 and 6 on Cross Highway in Westport. In February, 1988, after accepting the plaintiff's loan commitment, Munigle retained the defendants to provide certain legal services in connection with the loan, including searching the title of lots 5 and 6, preparing loan closing documents, and issuing to the plaintiff a title opinion and securing a title insurance policy for the plaintiff.

The complaint further alleged that the plaintiff sent an "Order For Title Search" directly to the defendants requesting them to search the title to the property and to issue a title opinion letter to the plaintiff. The defendants then conducted a title search on the lots, prepared loan closing documents, conducted the loan closing and issued a title opinion letter directly to the plaintiff, representing that the lots were unencumbered except for a preexisting first mortgage, and that the plaintiff's mortgage would be a valid second mortgage on the lots. In reliance on that letter, the plaintiff granted the $225,000 loan to Munigle and accepted a mortgage on the lots from Munigle.

The complaint also alleged that, in May, 1989, Munigle sold lot 5, and that the plaintiff discovered that its mortgage on lots 5 and 6 was actually a third mortgage that was subordinate to a second mortgage held by United Bank and Trust Company (UBTC). The plaintiff had not been advised of UBTC's second mortgage in the title opinion letter. The sale proceeds from lot 5 fully satisfied the first mortgage and partially satisfied UBTC's second mortgage. No portion of the sale proceeds, however, was available to satisfy any part of Munigle's $225,000 debt to the plaintiff. ³ In January, 1990, the first mortgagee foreclosed its mortgage on lot 6 and the lot was sold at a public auction. Due to the plaintiff's unintended third mortgagee position, the sale proceeds were insufficient to reduce the remaining debt owed by Munigle to the plaintiff.

The plaintiff's initial complaint alleged that the defendants were negligent in their title search and that the plaintiff was harmed by that negligence. The trial court granted the defendants' motion to strike the plaintiff's complaint, noting that "[n]o reading of the complaint, even in the broadest permissible sense, establishes directly or by inference an attorney-client relationship between the plaintiff and moving defendants. Nor does the complaint, read in the same fashion, contain the essential allegation that the defendants intended to assume a direct obligation to the plaintiff as required by Stowe v. Smith, 184 Conn. 194, 196 (1981). These facial inadequacies alone warrant the striking of this complaint." ⁴

Thereafter, the plaintiff filed an amended complaint. In count one of the amended complaint, the plaintiff alleged that the defendants had breached their attorney-client contract with the plaintiff. In count three, the plaintiff alleged that, in performing their contract with the plaintiff to provide legal services, the defendants had been negligent in that they had assumed a duty to the plaintiff to exercise reasonable care when conducting the title search, and that the defendants had breached this duty by failing to discover UBTC's existing second mortgage on lots 5 and 6, by failing to advise the plaintiff of such a mortgage in the title opinion letter, and by failing to perfect the second mortgage lien for the plaintiff.

The trial court granted the defendants' motion to strike the first and third counts of the plaintiff's amended complaint, noting that "[w]hile the amended complaint has addressed the facial inadequacies previously noted by this court ... this court still concludes that as a matter of law, in light of public policy, the amended complaint also fails to state a recognizable cause of action in either challenged count." ⁵ The reference to "public policy" involved the discussion by the trial court in its memorandum of decision on the defendants' first motion to strike. See footnote 4, supra. The court had noted in its previous decision that " 'courts have refrained from imposing liability [on an attorney] when such liability has the potential of interfering with the ethical obligations owed by an attorney to his or her client.' " The court had also concluded previously that in this case there was "serious potential for conflicts of interest if an attorney is required to serve two masters," namely, the borrower and the lender. The court had further noted that "[t]his court does not know of an area more filled with potential conflicts of interest than the area of lender and borrower relationships. Our dockets are filled with instances where such relationships have broken down. Collection actions and foreclosures crowd our dockets."

The plaintiff claims that the trial court improperly granted the defendants' motion because, in this particular case, the public policy concerns for protection of an attorney's undivided loyalty to his client do not exist. The defendants claim that the trial court properly granted their motion because liability should not arise in this case due to the potential conflicts of interest when an attorney represents two clients. We agree with the plaintiff.

"A motion to strike challenges the legal sufficiency of a pleading." Mingachos v. CBS, Inc., 196 Conn. 91, 108, 491 A.2d 368 (1985). In reviewing the granting of a motion to strike, we take the facts alleged in the plaintiff's complaint and construe the complaint in the manner most favorable to the plaintiff. Mozzochi v. Beck, 204 Conn. 490, 491, 529 A.2d 171 (1987). " 'This includes the facts necessarily implied and fairly provable under the allegations.... It does not include, however, the legal conclusions or opinions stated in the complaint....' " Coste v. Riverside Motors, Inc., 24 Conn.App. 109, 111, 585 A.2d 1263 (1991); see Amodio v. Cunningham, 182 Conn. 80, 83, 438 A.2d 6 (1980). If facts provable in the complaint would support a cause of action, the motion to strike must be denied. Stradmore Development Corporation v. Commissioners, 164 Conn. 548, 550-51, 324 A.2d 919 (1973).

Rule 1.7 of the Rules of Professional Conduct sets forth the general rule on conflicts of interest in an attorney-client relationship. ⁶ Rule 1.7(a) states in pertinent part that a "lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless ... [t]he lawyer reasonably believes the representation will not adversely affect the relationship...