Flaherty v. Weinberg

• Decision Date: 01 September 1983
• Docket Number: No. 118,118
• Citation: 303 Md. 116,492 A.2d 618
• Parties: , 61 A.L.R.4th 443, 53 USLW 2613 Robert E. FLAHERTY et ux. v. Manuel WEINBERG et al. ,
• Court: Maryland Court of Appeals

Page 116

303 Md. 116

492 A.2d 618, 61 A.L.R.4th 443, 53 USLW 2613

Robert E. FLAHERTY et ux. v. Manuel WEINBERG et al.

No. 118, Sept. Term, 1983.

Court of Appeals of Maryland.

May 28, 1985.

Brian J. Nash, Silver Spring (Hugh E. Donovan and Donovan & Nash, Silver Spring, on brief), for appellants.

Ronald W. Fuchs, Baltimore (Edward J. Hutchins, Jr., and Eccleston & Seidler, Baltimore, on brief), for appellees.

Argued before MURPHY, C.J., ELDRIDGE, COLE, DAVIDSON ^*, RODOWSKY and COUCH, JJ., and W. ALBERT

MENCHINE, Associate Judge of the Court of Special Appeals (retired), Specially Assigned.

COLE, Judge.

The question presented in this case is whether an attorney is liable to a nonclient for professional malpractice. Because we recognize that liability may attach in certain limited circumstances and because we last examined this issue over a decade ago, see Prescott v. Coppage, 266 Md. 562, 296 A.2d 150 (1972), and because of the significant increase in case law and professional literature on attorney liability to third parties, ¹ we find it useful to review the present state of the law on this subject before stating our answer.

I

A majority of American courts evidently continue to adhere to the view expressed in a 105-year-old Supreme Court decision holding that absent fraud, collusion, or privity of contract, an attorney is not liable to a third party for professional malpractice. ² National Savings Bank v Ward, 100 U.S. 195, 25 L.Ed. 621 (1880) (6-3 decision). In that case, a negligence action was instituted against an attorney by a third party lender who had relied on the attorney's certification of title in making a loan secured by land purportedly owned by the prospective borrower. The attorney certified the client's title as good even though the client had previously sold the property. After this certification, the client obtained brokers to negotiate a $3,500 loan. The borrower signed a note payable to the brokers and designated the brokers as trustees in a trust deed. The brokers secured a loan from the lender and used the certificate of title and trust deed as collateral. When the borrower failed to pay the note at maturity, the lender discovered that the attorney, with whom it had no contract or communication, had negligently certified that his client had good record title. Referring to a line of English cases, see, e.g., Winterbottom v. Wright, 10 Messon & Welsby 109, 152 Eng.Rep. 402 (1842), the Supreme Court held that the attorney was not liable to the lender because of the absence of privity. Although the attorney should have discovered the sale through the exercise of reasonable care, the Court stated that a third party could recover against the attorney only in cases involving fraud or collusion. ³ National Savings Bank v. Ward, supra, 100 U.S. at 205-06, 25 L.Ed. at 625. But see id. at 207-08, 25 L.Ed. at 625-26 (Waite, C.J., dissenting) (attorneys' liability to third parties should be based on the foreseeability that a third party would rely on the attorneys' work).

Despite National Savings Bank and its progeny, the rule of strict contractual privity has been relaxed in modern jurisprudence. Beginning with an 1852 decision by the Court of Appeals of New York, American courts expressed a willingness to depart from the strict contractual privity rule. See Thomas v. Winchester, 6 N.Y. 397, 407-10 (1852) (ultimate consumer could sue manufacturer who negligently mislabeled a bottle of poison, although the consumer bought the bottle from a druggist). Subsequent decisions have confirmed that, in the words of Chief Judge (later Justice) Cardozo, "[t]he assault upon the citadel of privity is proceeding in these days apace." Ultramares Corp. v. Touche, Niven & Co., 255 N.Y. 170, 180, 174 N.E. 441, 445 (1931); see Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922) (Cardozo, J.) (privity of contract not required in cases involving economic loss caused by negligent services); MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 (1916) (Cardozo, J.) (privity of contract not required in cases where the manufacturers' negligence caused physical injury to a third party).

Consistent with the erosion of the strict privity requirement in the above areas, a growing number of jurisdictions have made inroads into this requirement in attorney malpractice cases by employing one of two basic conceptual models: (1) the balancing of factors theory, or (2) the third party beneficiary theory. ⁴ The Supreme Court of California was the first court to depart from the strict contractual privity rule of National Savings Bank. The California court formulated the balancing of factors theory in Biakanja v. Irving, 49 Cal.2d 647, 320 P.2d 16 (1958), refined it in the context of attorney malpractice in Lucas v. Hamm, 56 Cal.2d 583, 364 P.2d 685, 15 Cal.Rptr. 821 (1961), cert. denied, 368 U.S. 987, 82 S.Ct. 603, 7 L.Ed.2d 525 (1962), and applied it in Heyer v. Flaig, 70 Cal.2d 223, 449 P.2d 161, 74 Cal.Rptr. 225 (1969). See also Bucquet v. Livingston, 57 Cal.App.3d 914, 129 Cal.Rptr. 514 (1976) (applying factors); Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, 57 Cal.App.3d 104, 128 Cal.Rptr. 901 (1976) (same). Under this policy-based approach, the court balances the following factors in determining whether to impose a duty on attorneys not in privity with third parties: (1) the extent to which the transaction was intended to affect the plaintiff; (2) the foreseeability of harm to the plaintiff; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant's conduct and the injury; (5) the moral blame attached to the defendant's conduct; and (6) the policy of preventing future harm. ⁵ Although several jurisdictions have approved the Lucas balancing test to determine whether an attorney owes a duty to a third party, see, e.g. Bird v. Rothman, 128 Ariz. 599, 627 P.2d 1097 (Ct.App.1981); Fickett v. Superior Court of Pima County, 27 Ariz.App. 793, 558 P.2d 988 (1976); Licata v. Spector, 26 Conn.App. 378, 225 A.2d 28 (1966); McAbee v. Edwards, 340 So.2d 1167 (Fla.Dist.Ct.App.1976); Jenkins v. Wheeler, 69 N.C.App. 140, 316 S.E.2d 354 (quoting United Leasing Corp. v. Miller, 45 N.C.App. 404, 406-07, 263 S.E.2d 313, 318, review denied, 300 N.C. 374, 267 S.E.2d 685 (1980)), review denied, 311 N.C. 758, 321 S.E.2d 136 (1984); Auric v. Continental Casualty Co., 111 Wis.2d 507, 331 N.W.2d 325 (1983), it has not met with universal acceptance. Some courts have eschewed that approach as too broad, see Pelham v. Griesheimer, 92 Ill.2d 13, 22, 64 Ill.Dec. 544, 548, 440 N.E.2d 96, 100 (1982), or so "unworkable" that it "has led to ad hoc determinations and inconsistent results[.]" Guy v. Liederbach, 501 Pa. 47, 57, 459 A.2d 744, 749 (1983).

The second conceptual model used in malpractice cases involving attorney liability to third parties is the third party beneficiary contract theory. In general terms, a third party beneficiary contract arises when two parties enter into an agreement with the intent to confer a direct benefit on a third party, allowing the third party to sue on the contract despite the lack of privity. Several jurisdictions, including Illinois and Pennsylvania, have adopted this particular approach. See, e.g., Ogle v. Fuiten, 102 Ill.2d 356, 80 Ill.Dec. 772, 466 N.E.2d 224 (1984); York v. Stiefel, 99 Ill.2d 312, 76 Ill.Dec. 88, 458 N.E.2d 488 (1984); Pelham v. Griesheimer, supra; Guy v. Liederbach, supra.

It is evident from the brief review above that the present state of the law governing attorney liability to nonclients is far from settled. Although some commentators suggest that the weight of authority supports the strict privity rule, most nonetheless agree that the trend is against this requirement. See, e.g., D. Meiselman, Attorney Malpractice: Law and Procedure § 6:6, at 105 (1980); Lawyers' Manual on Professional Conduct (ABA/BNA) 71:1101 (1984); Annot., 45 A.L.R.3d 1181 (1972). According to a treatise in the area of attorney malpractice:

There is an abundance of authority for the proposition that only the client can sue the attorney for a negligent act or omission, and its corollary, that the attorney owes no duty to a person other than his client. Relying upon annotations and commentators, some courts have stated that a strict privity requirement is a majority rule. Such comments may reflect the holdings and dictum of the majority of the decisions under particular facts, but do not accurately characterize the state of the law in the United States.

The vast majority of such decisions concern factual situations where no jurisdiction would permit the plaintiff to bring a suit for negligence. Many reported decisions concern claims of opponents in litigation, yet no jurisdiction has found a duty by an attorney to an adverse party. Similar contentions by a client's divorced spouse or children have also been uniformly rejected.

Other limitations include the rejection of a duty to a buyer by a seller's attorney or to another attorney who referred the case.

One way to measure the strength of the privity rule is to examine those decisions concerning claims by a would-be beneficiary of a will. With the sole exception of New York, jurisdictions have permitted a cause of action. On the other hand, errors relating to certification of title to real property allegedly done for the benefit of the plaintiff have generally been rejected. Another indication of the strength of the privity rule is the trend of the more recent decisions. Suffice it to say that the vast majority of modern decisions favored expanding privity beyond the confines of the attorney-client relationship.

R. Mallen & V. Levit, Legal Malpractice § 79, at 152-54 (2d ed. 1981) (footnotes omitted).

II

A.

The evolution of the law in Maryland governing attorney liability to third parties has essentially paralleled the national development. For instance, in 1940 this Court adopted...