Cowan Liebowitz & Latman, PC v. Kaplan

• Decision Date: 17 March 2005
• Docket Number: No. SC03-59.,SC03-59.
• Parties: COWAN LIEBOWITZ & LATMAN, P.C., et al., Petitioners, v. Donald KAPLAN, etc., Respondent.
• Court: Florida Supreme Court

902 So.2d 755

COWAN LIEBOWITZ & LATMAN, P.C., et al., Petitioners, v. Donald KAPLAN, etc., Respondent.

No. SC03-59.

Supreme Court of Florida.

March 17, 2005.

Rehearing Denied May 10, 2005.

Laura Besvinick of Hogan and Hartson, LLP, Miami, FL on behalf of Cowan, Liebowitz and Latman, P.C.; Robert Michael Klein and Marlene S. Reiss of Stephens, Lynn, Klein, Lacava, Hoffman and Puya, Miami, FL on behalf of Stephen M. Rosenberg and James J. D'Esposito; Caryn Bellus of Kubicki Draper, P.A., Miami, FL on behalf of Franzino and Rosenberg, P.C.; and Deborah Poore Knight of Walton, Lantaff, Schroeder and Carson Corporate Center, Fort Lauderdale, FL on behalf of Marshall Platt, Marshall Douglas Platt, P.A., Jack B. Packer, P.A. and Packer and Platt, for Petitioner.

Steven E. Stark and David A. Friedman of Fowler White Burnett, P.A., Miami, FL, for Respondent.

Daniel S. Green of Ullman and Kurpiers, LLC and Tracy Raffles Gunn of Fowler, White, Boggs and Banker, P.A, Tampa, FL on behalf of Florida Defense Lawyers' Association and Paul Steven Singerman, Ilyse M. Homer and Paul A. Avron of Berger Singerman, P.A., Miami, FL on behalf of the Business Law Section of the Florida Bar, as Amici Curiae.

CANTERO, J.

In this case, we decide whether a potential plaintiff may assign a legal malpractice claim involving the preparation of private placement memoranda. In two prior cases, we allowed the assignment of other types of claims, contrasting them to claims for legal malpractice, which we stated were not assignable. See Forgione v. Dennis Pirtle Agency, Inc., 701 So.2d 557 (Fla.1997) (permitting the assignment of claims against an insurance agent); KPMG Peat Marwick v. Nat'l Union Fire Ins. Co., 765 So.2d 36 (Fla.2000) (permitting the assignment of claims against an accountant conducting an independent audit). In the decision below, the Third District Court of Appeal permitted the assignment of a legal malpractice claim, analogizing an attorney preparing private placement memoranda to the accountant conducting an independent audit we described in KPMG. See Kaplan v. Cowan Liebowitz & Latman, P.C., 832 So.2d 138, 140 (Fla. 3d DCA 2002). That holding expressly and directly conflicts with our statements in KPMG and Forgione (albeit in dictum) implying a blanket prohibition against assignment of legal malpractice claims. Therefore, we accepted jurisdiction. Cowan Liebowitz & Latman, P.C. v. Kaplan, 844 So.2d 645 (Fla.2003) (table); see art. V, § 3(b)(3), Fla. Const; see also Watson Realty Corp. v. Quinn, 452 So.2d 568, 569 (Fla.1984) (accepting jurisdiction based on conflict between the district court opinion and dictum in a prior Supreme Court case and receding from the dictum). For the reasons explained below, we approve the district court's decision. We agree that because lawyers preparing private placement memoranda, like independent auditors, owe a duty to those who rely on statements contained in their published documents, parties may assign claims for legal malpractice committed in preparing them. We therefore recede from the broad dicta in KPMG and Forgione purporting to prohibit the assignment of all legal malpractice claims. Nevertheless, we stress that the vast majority of legal malpractice claims remain unassignable because in most cases the lawyer's duty is to the client.

I. FACTS

Medical Research Industries, Inc. (MRI), a Florida corporation, developed and marketed homeopathic medical products. To raise money for capital improvements, MRI decided to issue a private placement of shares in the company. MRI's majority shareholder, William Tishman, consulted attorneys who prepared private placement memoranda. Through four private placements between 1996 and 1998, MRI raised over $50 million from about 2000 shareholders. Later, Tishman borrowed about $18 million in unsecured loans from MRI, leading to its eventual insolvency. MRI sued Tishman to recover the loan amount and obtained a judgment. Unable to satisfy the judgment, however, MRI executed an "Assignment for the Benefit of Creditors" to Donald Kaplan.¹ Kaplan then sued for legal malpractice the attorneys who prepared the private placement memoranda. The trial court granted the attorneys' motions to dismiss, concluding that legal malpractice claims are personal and not assignable and are exempt from levy and sale under an execution of assignment.

On appeal, the Third District reversed. It held that Kaplan had standing to bring the legal malpractice claims against the attorneys "[b]ecause the legal services at issue [were] not personal in nature but involved the publication of corporate information to third parties, i.e., the investors" and therefore "the policies underlying the prohibition of bare assignment of legal malpractice claims are inapplicable." Kaplan, 832 So.2d at 140. The district court relied on KPMG's holding that the relationship of a corporate client to an independent auditor does not implicate the same confidentiality concerns as the typical attorney-client relationship. Id.; see KPMG, 765 So.2d at 38. The court concluded that such concerns were not present in this case either, because the attorneys shared their information with third parties — i.e., shareholders and the investing public. The court also held that because Kaplan, as an assignee for the benefit of creditors, was charged with gathering and liquidating MRI's assets, "Kaplan is no different from a trustee in bankruptcy who has full standing to bring a debtor's legal malpractice claim." 832 So.2d at 140.

II. ANALYSIS

We agree with the district court that the public policy concerns with permitting the assignment of legal malpractice claims are substantially attenuated, if they exist at all, when attorneys prepare private (or public) placement memoranda. In such circumstances, attorneys act much as accountants do in performing independent audits. That is, they act not just for the corporation's benefit, but for the benefit of all those who rely on the representations in their documents — in this case, potential shareholders. Because we approve the district court's holding on this ground, we need not consider the court's alternative theory of assignability: that an assignee for the benefit of creditors is analogous to a bankruptcy trustee, to whom legal malpractice claims may be transferred. See832 So.2d at 140; In re Alvarez, 224 F.3d 1273, 1279 (11th Cir.2000) (holding that a legal malpractice claim arising from bankruptcy counsel's alleged negligence was "property of the estate" under 11 U.S.C. 541(a)(1)).

Below we discuss (A) our previous cases addressing the assignability of legal malpractice claims; (B) the role and duties of attorneys preparing private placement memoranda; and (C) why assignments of claims against attorneys involved in private placement memoranda do not implicate the public policy concerns generally associated with the assignment of legal malpractice claims.

A. Forgione and KPMG

As noted above, we previously have discussed the assignability of legal malpractice claims in two cases that did not involve such claims. In Forgione, we considered whether an insured could assign a claim for negligence against an insurance agent for failure to obtain proper coverage. 701 So.2d at 558. We said yes, reasoning that parties can assign causes of action derived from a contract or statute. Id. at 559. We compared the relationship between a prospective insured and an insurance agent with the attorney-client relationship. We noted that in contrast to the former relationship, the attorney-client relationship is confidential and personal and thus cannot be assigned: "Florida law views legal malpractice as a personal tort which cannot be assigned because of `the personal nature of legal services which involve highly confidential relationships.'" 701 So.2d at 559 (quoting Washington v. Fireman's Fund Ins. Co., 459 So.2d 1148, 1149 (Fla. 4th DCA 1984)).

Several years later, we permitted the assignment of a claim against an independent auditor for professional malpractice in preparing an audit. See KPMG, 765 So.2d at 39. As in Forgione, we noted that legal malpractice claims are not assignable "because of the personal nature of legal services which involve a confidential, fiduciary relationship of the very highest character, with an undivided duty of loyalty owed to the client." KPMG, 765 So.2d at 38. We found that unlike an attorney, who must zealously represent a client in an adversarial setting, "an independent auditor who is hired to give an opinion on a client's financial statements must do so with an independent impartiality which contemplates reliance upon the audit by interests other than the entity upon which the audit is performed." Id. We distinguished the public policy reasons discussed in Forgione that prohibit assignment of legal malpractice claims because "[r]ather than acting as an advocate with an undivided duty of loyalty owed a client, an independent auditor performs a different function." 765 So.2d at 38.

B. Private Placement Memoranda

We agree with the district court that the role of the attorneys in this case was similar to that of the independent auditors in KPMG. The claim is based on the attorneys' preparation of private placement memoranda and communications surrounding their production.² The memoranda disclosed information to MRI's shareholders and many potential investors. Like the independent auditors in KPMG, the attorneys intended that third parties would rely on the representations made in the memoranda. The legal services at issue, therefore, were not personal but involved publication of corporate information.

In a similar context, securities lawyers have been held to owe a duty to the public. In Securities & Exchange Commission v. Spectrum, Ltd., 489 F.2d 535, 541-42 (2d Cir.1973), the Second Circuit held:

The legal profession plays a unique and pivotal role in the effective implementation of the securities laws. Questions of

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