Bovee v. Gravel

• Citation: 811 A.2d 137
• Decision Date: 13 August 2002
• Docket Number: No. 01-347.,01-347.
• Parties: Maureen BOVEE, et al. v. John C. GRAVEL, Esq., et al.
• Court: Vermont Supreme Court

811 A.2d 137

Maureen BOVEE, et al. v. John C. GRAVEL, Esq., et al.

No. 01-347.

Supreme Court of Vermont.

August 13, 2002.

Present AMESTOY, C.J., and DOOLEY, MORSE, JOHNSON, and SKOGLUND, JJ.

ENTRY ORDER

Plaintiffs shareholders of Lyndonville Savings Bank & Trust Company appeal from a superior court judgment dismissing their complaint against defendants, the attorneys and law firms that represented the bank in a lawsuit against two of the plaintiffs, Evelyn and Roger Lussier. Plaintiffs contend the trial court erroneously: (1) ruled that they lack standing; (2) violated their constitutional rights to equal protection and due process; and (3) found facts contrary to the allegations in the complaint. We affirm.

This case is one of several resulting from the recent troubles of Lyndonville Savings Bank. In December 1993, plaintiff Roger Lussier was convicted in federal district court on a variety of criminal charges, including bank fraud, money laundering, and receipt of illegal commissions, committed during his tenure as the bank's president and chairman of the board. See United States v. Lussier, 71 F.3d 456 (2d Cir.1995) (affirming conviction); United States v. Lussier, 104 F.3d 32 (2d Cir.1997) (affirming district court's dismissal of post-judgment motion to rescind restitution order); United States v. Lussier, 219 F.3d 217 (2d Cir.2000) (affirming district court's denial of motion for new trial based on newly discovered evidence). Lussier was sentenced to a prison term of forty-six months, a fine of $100,000, and ordered to pay restitution of over $426,000.

In September 1995, following Roger Lussier's conviction, the bank filed a civil suit in federal district court against Roger Lussier and his wife Evelyn, seeking immediate payment of the restitution award, damages based on Roger Lussier's status as an officer and director of a bank in the Federal Reserve System, and recovery under several state law theories, including breach of fiduciary duty and fraudulent conveyance of certain bank shares to Evelyn Lussier. In February 1996, the district court dismissed Evelyn Lussier as a defendant based on her agreement with the bank to reverse the allegedly fraudulent conveyance by returning the stock to its pretransfer status. In July 1997, the bank abandoned that portion of the complaint based on Roger Lussier's status as a federal bank officer because the bank was not a member of the Federal Reserve. Trial proceeded on the remaining claims, resulting in a judgment for the bank on the state law claims totaling over $8 million. The district court denied a subsequent motion to set aside the judgment for lack of subject matter jurisdiction, but the Second Circuit Court of Appeals reversed, holding that federal law did not entitle the bank to seek a separate civil judgment on the restitution award, and that—since the bank had abandoned its claim based on Federal Reserve membership—the district court lacked pendent jurisdiction over the state law claims. Lyndonville Sav. Bank & Trust Co. v. Lussier, 211 F.3d 697, 703-05 (2d Cir.2000).

In June 2000, following dismissal of the federal action, the bank filed a new civil suit against Roger Lussier in Caledonia Superior Court, seeking, inter alia, an attachment of the bank shares transferred back to Roger as part of the agreement dismissing Evelyn Lussier from the federal action. The trial court granted Evelyn Lussier's motion to intervene in the new lawsuit, noting that her earlier agreement reversing the transfer of stock in return for her dismissal from the federal action was void due to the district court's lack of subject matter jurisdiction.

Shortly thereafter, plaintiffs—comprised of various bank shareholders including Roger and Evelyn Lussier—filed this action against the attorneys and law firms that had represented the bank in the federal lawsuit against the Lussiers.¹ The complaint alleged that defendants had erroneously advised the bank concerning the adequacy of insurance coverage for defense costs and losses associated with the various lawsuits involving the bank; failed to advise the bank to prosecute bad faith actions against its various insurance companies; and filed the federal lawsuit against Roger and Evelyn Lussier knowing that there was no reasonable basis for the assertion of federal jurisdiction or the fraudulent conveyance claim. Based on these allegations, the complaint stated a single cause of action for negligence, asserting that "a reasonably prudent attorney" in defendants' circumstances would have investigated whether: (1) there was a reasonable factual basis in the federal suit for the assertion of federal jurisdiction; (2) there was a reasonable factual basis for the fraudulent conveyance claim; (3) there was a conflict of interest in defendants' filing the state court action against Roger Lussier; (4) there was a reasonable basis for reissuing the disputed stock in Roger Lussier's name alone without regard to the property interests of Evelyn Lussier; and (5) plaintiffs were entitled to information concerning the costs incurred in prosecuting the civil actions against Roger Lussier.

Defendants moved to dismiss the complaint, asserting that they had no attorney-client relationship with plaintiffs, and that plaintiffs therefore lacked standing to bring an action for professional malpractice based on their representation of the bank. The trial court agreed, granted the motion to dismiss, and entered judgment for defendants. Plaintiffs' subsequent motion for reconsideration was denied. This appeal followed.

The longstanding common law rule is that an attorney owes a duty of care only to the client, not to third parties who claim to have been damaged by the attorney's negligent representation. See Savings Bank v. Ward, 100 U.S. 195, 200, 25 L.Ed. 621 (1879) ("Beyond all doubt, the general rule is that the obligation of the attorney is to his client and not to a third party...."); Clagett v. Dacy, 47 Md.App. 23, 420 A.2d 1285, 1287 (1980) ("The traditional rule, in Maryland and elsewhere, is that an attorney's duty of diligence and care flows only to his direct client/employer, and that, whether in an action of contract or tort, only that client/employer can recover against him for a breach of that duty."); see generally Annot., Attorney's Liability to One Other Than Immediate Client, for Negligence in Connection With Legal Duties, 61 A.L.R.4th 615, 624 (1988) (collecting cases).

Because in Vermont, as elsewhere, a corporation is a legal entity distinct from its shareholders, Jack C. Keir, Inc. v. Robinson & Keir P'ship, 151 Vt. 358, 360, 560 A.2d 957, 958 (1989), it is also the general rule that an attorney representing a corporation owes a duty of care solely to the corporation, not to its separate shareholders, officers or directors. See, e.g., Delta Automatic Sys., Inc. v. Bingham, 126 N.M. 717, 974 P.2d 1174, 1178 (Ct.App. 1998) (in representing corporation, attorneys "did not owe [shareholders] any special duty above and beyond their duties to the corporation"); In re Banks, 283 Or. 459, 584 P.2d 284, 289 (1978) (corporate attorney's "duty of loyalty is to the corporation and not to its officers, directors or any particular group of shareholders"); Bowen v. Smith, 838 P.2d 186, 189 (Wyo. 1992) (representation of corporation did not create attorney-client relationship with shareholders); see generally 3 R. Mallen & J. Smith, Legal Malpractice § 25.9 at 771-74 (5th ed.2000) (discussing rule that only corporation may sue attorney for professional negligence).

The requirement of attorney-client privity to maintain a malpractice action "ensure[s] that attorneys may in all cases zealously represent their clients without the threat of suit from third parties compromising that representation." Barcelo v. Elliott, 923 S.W.2d 575, 578-79 (Tex. 1996); see also Orr v. Shepard, 171 Ill. App.3d 104, 121 Ill.Dec. 57, 524 N.E.2d 1105, 1108 (1988) ("Public policy mandates that when an attorney acts in his professional capacity, he must be free to advise his client without fear of personal liability to third persons and nonclients if the advice later proves to be incorrect."); Brody v. Ruby, 267 N.W.2d 902, 906 (Iowa 1978) ("abandonment of the privity requirement would place a potentially unlimited burden on lawyers"); see generally Comment, Limits on the Privity and Assignment of Legal Malpractice Claims, 59 U. Chi. L.Rev. 1533, 1539 (1992) (discussing interests in maintaining and relaxing privity requirement). In the corporate context, the privity rule serves to focus the attorney on the corporate client's interests, rather than the diverse needs and interests of the corporate shareholders, and avoids potentially unlimited liability to dissenting shareholders. See Gamboa v. Shaw, 956 S.W.2d 662, 665 (Tex.App.1997) ("deviation [from privity requirement] would result in attorneys owing a duty to each shareholder of any corporation they represent," leading to "almost unlimited liability").

To be sure, a number of courts have relaxed the privity rule in limited circumstances—most often in the estate-planning context—where it can be shown that the client's purpose in retaining the attorney was to directly benefit a third party. See, e.g., Lucas v. Hamm, 56 Cal.2d 583, 15 Cal.Rptr. 821, 364 P.2d 685, 687-88 (1961) (intended beneficiaries of will who lost testamentary rights because of attorney negligence may recover against attorney as third-party beneficiaries); Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, 57 Cal. App.3d 104, 128 Cal.Rptr. 901, 905-06 (1976) (law firm may be liable to third-party lender for negligent misrepresentation where firm knew that misrepresentations would be used to obtain loan); Stowe v. Smith, 184 Conn. 194, 441 A.2d 81, 83 (1981) (nonclient plaintiff had standing to sue attorney who contravened testator's instructions to leave plaintiff the principal of testamentary trust); Pelham v. Griesheimer, 92 Ill.2d 13, 64...