Leyba v. Whitley

Citation120 N.M. 768,907 P.2d 172,1995 NMSC 66
Decision Date11 October 1995
Docket NumberNo. 22309,22309
PartiesCandace LEYBA, conservator of the Estate of Phillip Leroy Urioste, a minor, Plaintiff-Petitioner, v. Joseph E. WHITLEY and Daniel W. Shapiro, Defendants-Respondents.
CourtSupreme Court of New Mexico
OPINION

RANSOM, Justice.

1. Candace Leyba is the conservator for her minor son, Phillip LeRoy Urioste. In that capacity she sued attorneys Joseph E. Whitley and Daniel W. Shapiro for legal malpractice in their handling of a claim for the wrongful death of Phillip LeRoy's father, Phillip Urioste. As sole statutory beneficiary, Phillip LeRoy has been deprived of nearly $325,000 in net wrongful death proceeds obtained by Whitley and Shapiro. They paid the proceeds to the deceased's mother, Corrine Urioste, whom they represented as the personal representative in settling the wrongful death claim. Corrine dissipated the settlement proceeds and Leyba argues that Whitley and Shapiro breached a duty owed by them to her son to ensure that he receive his money.

2. The trial court entered summary judgment in favor of Whitley and Shapiro. On appeal the Court of Appeals held that the attorneys did not owe a duty directly to Phillip LeRoy to ensure that he receive the settlement proceeds. Leyba v. Whitley, 118 N.M. 435, 438-40, 882 P.2d 26, 29-31 (Ct.App.1994). The Court also held, however, that Whitley and Shapiro did owe a duty to their client Corrine to inform her that the money did not belong to her and that she had a fiduciary duty to distribute it to the child. Id. at 445, 882 P.2d at 36. The attorneys would be liable to the child if they breached this duty to their client. Finding a genuine issue of fact on the question whether Whitley and Shapiro had breached this duty, the Court reversed the entry of summary judgment. Id. at 445-46, 882 P.2d at 36-37. We granted certiorari, 118 N.M. 430, 882 P.2d 21 (1994), to review whether the attorneys owed the child a duty of reasonable care to protect his right to receive the net settlement proceeds. We conclude that an attorney handling a wrongful death case owes to the statutory beneficiaries of that action a duty of reasonable care to protect their interest in receiving any proceeds obtained. We therefore reverse and remand.

3. Facts and proceedings. Corrine hired attorney Whitley to pursue an action against several medical care providers for the death of her son Phillip who died in February 1990. Whitley had Corrine appointed personal representative of her son's estate and he associated with attorney Shapiro to pursue the wrongful death claims. Together, Whitley and Shapiro filed an application with the medical review commission. See NMSA 1978, § 41-5-14(D) (Repl.Pamp.1989) (requiring application to medical review commission for review of malpractice claims prior to filing claims in district court). Although no lawsuit was ever filed, Whitley and Shapiro successfully secured a settlement of Corrine's claims in March 1991 for the sum of $548,931.59.

4. Phillip LeRoy was not born until nearly seven months after Phillip died. Phillip previously had fathered two other children, but the parties do not ask that we consider whether the right these two children may otherwise have had to wrongful death benefits survived their adoption by others prior to Phillip's death. By the time Whitley and Shapiro secured a settlement of Corrine's claims, they had determined that Leyba's then six-month-old child was the sole statutory beneficiary of Phillip Urioste. See NMSA 1978, § 41-2-3 (Repl.Pamp.1989) (stating that when the deceased is unmarried, his or her child is entitled to proceeds of any wrongful death action).

5. The settling medical care providers issued checks for the agreed-upon sum made payable to Corrine as personal representative of Phillip Urioste's estate. Some of these checks also included Whitley and Shapiro as payees. Each of the payees endorsed the checks and all of the proceeds were then deposited into Shapiro's trust account. After deducting nearly $225,000 to cover costs and attorneys' fees, Whitley and Shapiro distributed the net settlement proceeds directly to Corrine by three separate checks made payable simply to "Corrine Urioste." Nothing on the checks indicated that the funds were paid to Corrine in a fiduciary capacity.

6. The attorneys testified in deposition that they disbursed the net settlement proceeds to Corrine based upon her representation that she intended to invest the proceeds on behalf of the child and manage those investments with the assistance of an investment advisor until the child reached age eighteen. Corrine never told Whitley or Shapiro where or with whom she intended to invest the money, and neither of them inquired. After receiving the checks, Corrine spent more than $300,000 on herself and on others. Among her purchases were numerous automobiles and three mobile homes, including a $40,000 mobile home for her own use. Of the total settlement Corrine reserved only $20,000 for Phillip LeRoy in a trust account at a Santa Fe brokerage firm.

7. In the trial court the parties presented conflicting evidence on the question whether Whitley and Shapiro had advised Corrine of her fiduciary obligations. Leyba presented deposition testimony in which Corrine stated that Whitley had told her the money was hers. Corrine also testified that she believed it was hers. Finally, Leyba presented evidence that Whitley had prepared the contract for Corrine to purchase the $40,000 mobile home and that he had included a clause making Corrine's performance of this contract contingent upon a wrongful death recovery. By contrast, the attorneys presented sworn statements that they had advised Corrine the money was not hers and sworn statements that other persons had advised Corrine of her fiduciary status. It is undisputed that the attorneys did not provide Corrine with written advice or instructions regarding her obligations in connection with the settlement proceeds.

8. Professional responsibilities in contract and tort. Whether Whitley and Shapiro owed a duty to Phillip LeRoy is a question of law, Schear v. Board of County Comm'rs, 101 N.M. 671, 672, 687 P.2d 728, 729 (1984), and is based upon policy considerations, Calkins v. Cox Estates, 110 N.M. 59, 62, 792 P.2d 36, 39 (1990). By reference to existing statutes, rules of court, judicial precedent, and other principles comprising the law, we must determine whether the public policy of New Mexico supports a duty that runs directly from these attorneys to the child--a duty that requires them to exercise reasonable care to protect the child's interest in the settlement proceeds of the wrongful death action of which he was the sole statutory beneficiary.

9. Whitley and Shapiro, supported by amicus curiae New Mexico Defense Lawyers Association, argue that public policy prohibits imposing a duty of care running directly from attorneys to the statutory beneficiaries of a wrongful death claim. They argue that imposing such a duty will create conflicting loyalties and hence unduly burden the lawyer-client relationship. Specifically, they argue that imposing a duty to the nonclient beneficiaries will force attorneys to breach client confidences, will leave attorneys without anyone whose decisions regarding the litigation will be binding, and will place attorneys in the impossible, and perhaps unethical, position of trying to represent persons with competing claims.

10. Leyba and supporting amicus curiae New Mexico Trial Lawyers Association counter that perceived conflicting loyalties are more illusory than real. They contend that even though a lawyer is retained by the personal representative, the latter is a nominal party only and the lawyer's true obligation is to protect the statutory beneficiaries. Leyba argues in the alternative that even if imposing a duty on the lawyer running directly to the statutory beneficiaries may create conflicting loyalties, the Court of Appeals erroneously gave dispositive effect to the burden that such conflicts would impose on the lawyer-client relationship. As part of her argument, Leyba urges this Court to adopt a multi-factor balancing test under which the burden imposed on the lawyer-client relationship is only one among several factors to be considered in determining whether a duty exists.

11. --Privity principles affecting whether attorney owes professional duty to nonclient. Although courts stop short of declaring an intended third-party beneficiary to be in privity of contract, such a party is accorded traditional contract remedies with respect to the bargain intended for his or her benefit. See, e.g., Johnson v. Armstrong & Armstrong, 41 N.M. 206, 210, 66 P.2d 992, 994-95 (1937) (unnamed third-party beneficiary may enforce contract). Thus, when a third party can show that both the attorney and the client intended by their agreement to benefit the third party, then he or she has a remedy in contract against the attorney. For purposes of our analysis here, we will assume that the third party's remedy in contract is based upon a duty running from the attorney to the client rather than from the attorney to the third party. As with any service contract, an implied term of an attorney's contract to provide professional services for the benefit of a third party is the promise to render services with reasonable skill and care. Cf. Flores v. Baca, 117 N.M. 306, 310, 871 P.2d 962, 966 (1994).

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