Borissoff v. Taylor & Faust

• Court: California Supreme Court
• Writing for the Court: WERDEGAR, J.
• Citation: Borissoff v. Taylor & Faust, 15 Cal.Rptr.3d 735, 93 P.3d 337, 33 Cal.4th 523 (Cal. 2004)
• Decision Date: 15 July 2004
• Docket Number: No. S105600.,S105600.
• Parties: Robert A. BORISSOFF, as Executor, etc., Plaintiff and Appellant, v. TAYLOR & FAUST et al., Defendants and Respondents.

15 Cal.Rptr.3d 735

93 P.3d 337

33 Cal.4th 523

Robert A. BORISSOFF, as Executor, etc., Plaintiff and Appellant, v. TAYLOR & FAUST et al., Defendants and Respondents.

No. S105600.

Supreme Court of California.

July 15, 2004.

Law Offices of Mattaniah Eytan, Mattaniah Eytan, Corte Madera, Howard Underwood and Andrea Widburg, for Plaintiff and Appellant.

Krieg, Keller, Sloan, Reilley & Roman, James C. Krieg, San Francisco, Allison Lane Cooper; Law Offices of Anthony P. David and Anthony P. David, San Francisco, for Defendants and Respondents Taylor & Faust and Leland H. Faust.

Law Offices of Joseph D. Joiner and Joseph D. Joiner, San Francisco, for Defendant and Respondent Burton McGovern.

WERDEGAR, J.

This case raises the question whether the successor fiduciary of an estate in probate may assert a professional negligence claim against attorneys retained by a predecessor fiduciary to provide tax assistance for the benefit of the estate. We hold the successor fiduciary may do so.

I. BACKGROUND

Testator Veronica M. Smith died on June 16, 1989, leaving two wills, one executed in 1983 and the other in 1987.¹ The 1987 will named plaintiff Robert A. Borissoff as executor. Decedent's grandniece filed an action in probate court to contest the 1987 will. Pending resolution of the contest, the court appointed Paul Springer, an attorney and former probate commissioner, as special administrator. Springer retained defendants, the law firm of Taylor & Faust (hereafter Faust, or the Faust defendants), to provide assistance on tax matters. In their retention letter to Springer, the Faust defendants recited that they had "agreed to prepare the Federal and California estate tax returns and the fiduciary income tax returns for the estate, to provide [Springer] with tax planning advice concerning the estate and to perform any other legal services which [Springer] request[s]." Springer accepted "on behalf of the Estate of Veronica M. Smith...." Faust subsequently filed federal and state tax returns for the estate, and the court approved payment from the estate of their fees.

At some point, Springer borrowed approximately $115,000 from the estate for personal reasons, without authorization. On November 3, 1992, Springer wrote an emotional letter to the Faust defendants, confessing the misappropriation and asking for their help in keeping him "out of trouble." Faust attempted to help Springer borrow money to repay the estate, but without success. On February 2, 1993, Faust informed Springer that the firm had "decided not to represent [Springer] any longer in [his] capacity as administrator of the [Smith] estate." Springer died on May 28, 1993. In July 1993, Faust turned over the estate's file to defendant Burton McGovern, an attorney. McGovern wrote to the Internal Revenue Service (IRS), noting that he had received the estate's file and, after reviewing it, would "attempt to resolve any problems that might exist." McGovern asked the IRS to "address all communications" concerning the estate to him.

September 14, 1993, was the last day for the estate to file IRS form 843, which would have extended for three years the estate's right to claim a tax refund. The form was not filed. As a result, the estate lost the ability to claim a refund for substantial administrative expenses related to the will contest.

On September 26, 1995, the court decided the will contest in favor of the 1987 will and thereafter appointed plaintiff Borissoff as executor. On November 21, 1995, Borissoff's attorney wrote McGovern, expressing "concern[ ] that the requisite annual filing [of IRS form 843] may not have taken place" and asking McGovern to address the question. As mentioned, the form had not been filed. Based on that omission, plaintiff filed the instant suit for malpractice against Faust and McGovern on May 14, 1998. Defendants cross-complained against one another. All defendants asserted against plaintiff, as affirmative defenses, that defendants owed no duty as attorneys to plaintiff, with whom they did not stand in privity of contract, and that the statute of limitations barred plaintiff's claims. To simplify the issues for trial, the parties agreed to submit those two defenses to an assigned judge for resolution based on stipulated facts. The judge decided both defenses against plaintiff and granted judgment for defendants. The Court of Appeal agreed that plaintiff lacked standing to sue defendants and affirmed the superior court's judgment on that basis, without reaching the statute of limitations issue. We granted plaintiff's petition for review.

II. DISCUSSION

In granting review, we limited briefing and argument to the issue raised in the petition for review: "May a successor fiduciary² of an estate in probate assert a professional negligence claim against tax counsel whom a predecessor fiduciary engaged exclusively to perform tax work for the estate?" The question is one of first impression in California. We answer it in the affirmative.³

Defendant attorneys contend they owed a duty, and are answerable in malpractice, only to the person who retained them and with whom they stand in privity of contract. The person who retained the Faust defendants was Springer, the predecessor fiduciary.⁴ To be sure, an attorney will normally be held liable for malpractice only to the client with whom the attorney stands in privity of contract, and not to third parties. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 342-344, 134 Cal.Rptr. 375, 556 P.2d 737.) Furthermore, when a fiduciary hires an attorney for guidance in administering a trust, the fiduciary alone, in his or her capacity as fiduciary, is the attorney's client. (Moeller v. Superior Court (1997) 16 Cal.4th 1124, 1130, 69 Cal.Rptr.2d 317, 947 P.2d 279 (Moeller); Fletcher v. Superior Court (1996) 44 Cal.App.4th 773, 777, 52 Cal. Rptr.2d 65.) The trust is not the client, because "a trust is not a person but rather `a fiduciary relationship with respect to property.'" (Moeller, at p. 1132, fn. 3, 69 Cal.Rptr.2d 317, 947 P.2d 279, quoting Rest.2d Trusts, § 2, italics in Moeller.) Neither is the beneficiary the client, because fiduciaries and beneficiaries are separate persons with distinct legal interests. (Wells Fargo Bank v. Superior Court (2000) 22 Cal.4th 201, 212, 91 Cal.Rptr.2d 716, 990 P.2d 591; Lasky, Haas, Cohler & Munter v. Superior Court (1985) 172 Cal. App.3d 264, 282-286, 218 Cal.Rptr. 205.)

While Borissoff does not stand in privity of contract with defendants, he nevertheless argues that three sources of law support his claim to standing. The first is the Probate Code, which defines the powers of fiduciaries and successor fiduciaries. (See id., §§ 8524, 9820, 10801.)⁵ The second is our decision in (Moeller, supra, 16 Cal.4th 1124, 1129-1135, 69 Cal.Rptr.2d 317, 947 P.2d 279), in which we held that a successor fiduciary, upon taking office, becomes the holder of the attorney-client privilege for certain confidential communications between the predecessor fiduciary and an attorney on the subject of trust administration. The third is the set of judicial decisions articulating the circumstances under which someone not a party to a contract may sue to enforce it as a third party beneficiary. (E.g., Lucas v. Hamm (1961) 56 Cal.2d 583, 15 Cal.Rptr. 821, 364 P.2d 685 [under specific facts of case, intended recipients of testamentary gifts were third party beneficiaries of contract between testator and attorney who wrote will]; Biakanja v. Irving (1958) 49 Cal.2d 647, 320 P.2d 16 [unlicensed person acting as attorney, but similar result].)

To determine the question of standing presented here, we need not look beyond the Probate Code. The code's relevant provisions strongly support the inference that a successor fiduciary does have standing to sue an attorney retained by a predecessor fiduciary to give tax advice for the benefit of the estate. The code expressly authorizes a personal representative to "employ or retain tax counsel" (§ 10801, subd. (b)) and to "pay from the funds of the estate for such services" (ibid.). The code also provides that a "successor personal representative has the powers and duties in respect to the continued administration that the former personal representative would have had" (§ 8524, subd. (c)), including the power to "[c]ommence and maintain actions and proceedings for the benefit of the estate" (§ 9820, subd. (a)). Reading these provisions together, the following two conclusions seem inescapable: First, a fiduciary who hires an attorney with estate funds to provide tax assistance to the estate (§ 10801, subd. (b)) may, if the attorney commits malpractice harming the estate, commence an action for the benefit of the estate to recover the loss (§ 9820, subd. (a)). Second, if the fiduciary who hired the attorney is replaced, the successor acquires the same powers the predecessor had in respect to trust administration (§ 8524, subd. (c)), including the power to sue for malpractice. In short, the absence of privity, viewed as an impediment to standing, is a gap the Legislature has filled.

In this respect, the successor fiduciary's power to sue for malpractice is no different than the successor's power to sue for nonperformance a person hired by the predecessor to fix the roof of a house belonging to the estate. While privity of contract may not exist, the successor has the same powers and duties as the predecessor (§ 8524, subd. (c)), including the power to sue.

Arguing for the opposite result, defendants rely on Goldberg v. Frye (1990) 217 Cal.App.3d 1258, 266 Cal.Rptr. 483. That decision, however, is not on point. The court in Goldberg held that the beneficiaries of a trust do not have standing to assert malpractice claims against an attorney hired by the fiduciary. This conclusion, as the Goldberg court explained, follows from the general rule that an attorney owes a duty of care, and is thus answerable in malpractice, only to the client with whom the...