First Mun. Leasing Corp. v. Blankenship, Potts, Aikman, Hagin and Stewart

• Decision Date: 16 March 1983
• Docket Number: No. 05-82-00267-CV,05-82-00267-CV
• Citation: 648 S.W.2d 410
• Parties: FIRST MUNICIPAL LEASING CORPORATION, Appellant, v. BLANKENSHIP, POTTS, AIKMAN, HAGIN AND STEWART, A Professional Corporation, Cooper Blankenship, C. Terry Hagin, John A. Stewart, and A.E. Aikman d/b/a Blankenship and Potts, Appellees.
• Court: Texas Court of Appeals

Page 410

648 S.W.2d 410

FIRST MUNICIPAL LEASING CORPORATION, Appellant, v. BLANKENSHIP, POTTS, AIKMAN, HAGIN AND STEWART, A Professional Corporation, Cooper Blankenship, C Terry Hagin, John A. Stewart, and A.E Aikman d/b/a Blankenship and Potts, Appellees.

No. 05-82-00267-CV.

Court of Appeals of Texas Dallas.

March 16, 1983.

Robert Hager, Peter G. Smith, Dallas, for appellant.

Patrick F. McGowan, Valli Jo Long, Dallas, for appellees.

Before STEPHENS, WHITHAM and GUILLOT, JJ.

WHITHAM, Justice.

The appellant, First Municipal Leasing Corporation, appeals from a summary judgment in favor of appellees, Blankenship, Potts, Aikman, Hagin and Stewart, a Professional Corporation, Cooper Blankenship, C. Terry Hagin, John A. Stewart, and A.E. Aikman d/b/a Blankenship and Potts. The issues involve (1) whether the appellee-attorneys were negligent with respect to an opinion letter, (2) whether the subject of the letter was a security within the meaning of the Texas Blue Sky Law, and (3) whether First Municipal was a "consumer" under the Texas Deceptive Trade Practices Act. We conclude that the trial court correctly granted summary judgment. Accordingly, we affirm.

First Municipal arranged financing for municipal corporations and political subdivisions by purchasing their lease/purchase and installment obligations. After purchase, First Municipal sold such obligations to third party investors. On or about August 21, 1978, The System Works represented to First Municipal that it had contracted to sell computer software and hardware to Fort Bend County. First Municipal took an assignment of System Works' right to receive payments from the County. First Municipal paid System Works a fixed sum of money. On August 21, 1978, System Works and the County executed the contract for computer equipment and on that same date System Works assigned and discounted its right to receive payment to First Municipal. On or about September 6, 1978, Richardson Heights Bank and Trust, the third party investor, purchased from First Municipal this right to receive the County's payments. Prior to its purchase, the Bank required that First Municipal obtain a letter from a Texas law firm as to whether or not the contract right and obligation held by System Works was a valid and binding legal obligation of the County. The Bank informed First Municipal and System Works that no money would be transferred to fund the transaction until it received such legal opinion. First Municipal requested System Works to provide it with this legal opinion and System Works employed the Attorneys to provide the opinion. Moreover, First Municipal, as required by the Bank, submitted to System Works the exact wording of the requested legal opinion. The Attorneys knew that such opinion was to be given to a third party. On August 28, 1978, seven days after First Municipal had already become the assignee of the County's contract, the Attorneys submitted to System Works a legal opinion verifying the validity of the transaction between System Works and the County. The letter was addressed and submitted only to System Works by the Attorneys. System Works paid their fees. This letter was subsequently provided to First Municipal and the Bank by System Works. After the entire financing transaction had been consummated it was determined that the County had not lawfully entered into the contract and that the County was not obligated to System Works or the Bank. Following that determination, First Municipal purchased the contract from the Bank and brought this action to recover its loss. Negligence.

First, we consider First Municipal's negligence action. It is undisputed that First Municipal was not a client of the Attorneys and that the Attorneys submitted the opinion letter to its client, System Works, and not to First Municipal or the Bank. First Municipal concedes that under present Texas law an attorney owes no duty to a third party in the absence of privity of contract, citing Bell v. Manning, 613 S.W.2d 335 (Tex.Civ.App.--Tyler 1981, writ ref'd n.r.e.); Bryan & Amidei v. Law, 435 S.W.2d 587 (Tex.Civ.App.--Fort Worth 1968, no writ); Traders and General Ins. Co. v. Keith, 107 S.W.2d 710 (Tex.Civ.App.--Amarillo 1937, writ dism'd). First Municipal contends, however, that although the majority of jurisdictions hold attorneys owe no duty to third parties, the present trend is to the contrary, citing Roberts v. Ball, Hunt, Hart, Brown and Baerwitz, 57 Cal.App.3d 104, 128 Cal.Rptr. 901 (1976); Fickett v. Superior Court of Pima County, 27 Ariz.App. 793, 558 P.2d 988 (1976); Parnell v. Smart, 66 Cal.App.3d 833, 136 Cal.Rptr. 246 (1977); Biakanja v. Irving, 49 Cal.2d 647, 320 P.2d 16 (1958); Woodfork v. Sanders, 248 So.2d 419 (La.App.1971), writ denied, 259 La. 759, 252 So.2d 455; Donald v. Garry, 19 Cal.App.3d 769, 97 Cal.Rptr. 191 (1971); Lucas v. Hamm, 56 Cal.2d 583, 15 Cal.Rptr. 821, 364 P.2d 685 (1961), cert. denied, 368 U.S. 987, 82 S.Ct. 603, 7 L.Ed.2d 525 (1962); Heyer v. Flaig, 70 Cal.2d 223, 74 Cal.Rptr. 225, 449 P.2d 161 (1969). First Municipal urges that under the facts of the present case we must adopt the minority view. We decline to do so. To the contrary, we follow the Texas decisions and hold that an attorney owes no duty to a third party in the absence of privity of contract. Therefore, we conclude that the Attorneys owed no duty to First Municipal.

Although we decline to follow the minority view, the final result in the present case would be the same even if we were to do so. We conclude that even if we were to adopt the minority view the non-client First Municipal could not recover for the alleged negligence because it did not rely upon the opinion of the Attorneys. Restatement (Second) of Torts § 552 (1977) provides:

Information Negligently Supplied for the Guidance of Others

(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered

(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.

(3) The liability of one who is under a public duty to give the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them. [emphasis added].

In Home Federal Savings and Loan Ass'n v. Spence, 259 Md. 575, 270 A.2d 820 (Ct.App.--Md.1970), the client sought to recover damages from his attorney because of alleged negligence. In denying the client recovery the court emphasized the lack of reliance upon the act of the attorney:

We think the law is settled that before an attorney can be held liable, it must appear that the loss for which he is sought to be held arose from his failure to discharge some duty which was fairly within the purview of his employment ... and that it must be shown how the plaintiff was deprived of any rights or parted with anything of value, in reliance upon the statements or omissions in his certificate....

270 A.2d at 825 (citations omitted) (emphasis in original). In Shatterproof Glass Corp. v. James, 466 S.W.2d 873 (Tex.Civ.App.--Ft. Worth 1971, writ ref'd n.r.e.), reliance was stressed as an element of recovery in an action by third parties against certified public accountants alleging negligence in the preparation of audit reports.

[A]n accountant may be held liable to third parties who rely upon financial statements, audits, etc., prepared by the accountant in cases where the latter fails to exercise ordinary care in the preparation of such statements, audits, etc., and the third party because of such reliance suffers financial loss or damage.

466 S.W.2d at 880 (emphasis added).

In the present case, the undisputed evidence shows that First Municipal could not have relied upon the opinion of the Attorneys since First Municipal took the assignment of the benefits of the System Works-County lease agreement on August 21, 1978, one week before the Attorneys issued their opinion letter on August 28, 1978. We hold that, absent the required reliance, there is no right to recover for the alleged negligence in the present case as a matter of law. We conclude, therefore, that the trial court correctly granted summary judgment because the summary judgment evidence showed the nonexistence of a negligence action in favor of the third party, non-client First Municipal.

The Texas Blue Sky Law.

Next, we consider First Municipal's contention that the Attorneys in issuing their legal opinion aided and assisted in a sale of a security within the meaning of Tex.Rev.Civ.Stat.Ann. art. 581-4 (Vernon 1964 & Supp.1982-1983) (the Texas Blue Sky Law). First Municipal urges that the legal opinion constituted a false and fraudulent representation in connection with a sale of a security and as such violated the civil provision of Tex.Rev.Civ.Stat.Ann. art. 581-33 (Vernon Supp.1982-1983). First Municipal argues that the transaction in which it acquired the right to receive payments under the terms of a lease between System Works and the County was a "security" because it constituted an investment contract between First Municipal and System Works. The Attorneys contend that the transaction was a simple purchase of rights under a contract for a fixed price in exchange for a fixed...