Noble v. Bruce

• Decision Date: 01 September 1997
• Docket Number: Nos. 7,55,s. 7
• Citation: 709 A.2d 1264,349 Md. 730
• Parties: Aileen L. NOBLE et al. v. Charles A. BRUCE, Jr. Thomas W. FAUNTLEROY, Jr. et al. v. Sara N. BLIZZARD, Personal Representative et al. ,
• Court: Maryland Court of Appeals

Page 730

349 Md. 730

709 A.2d 1264

Aileen L. NOBLE et al. v. Charles A. BRUCE, Jr.

Thomas W. FAUNTLEROY, Jr. et al. v. Sara N. BLIZZARD, Personal Representative et al.

Nos. 7, 55, Sept. Term, 1997.

Court of Appeals of Maryland.

May 21, 1998.

Stanard T. Klinefelter (Shale D. Stiller, Kurt J. Fischer, Marta D. Harting, Piper & Marbury, L.L.P., Baltimore; William G. Duvall, Jr., Duvall & Duvall, Salisbury, all on brief), for petitioner.

Shale D. Stiller (Brett Ingerman, Piper & Marbury, L.L.P., on brief), Baltimore, for appellants.

Alvin I. Frederick (James E. Dickerman, James M. Timmerman, Eccleston and Wolf, on brief), Baltimore, for respondents and appellees.

Argued before BELL, C.J., ELDRIDGE, RODOWSKY, CHASANOW and RAKER, JJ., and MARVIN H. SMITH and ROBERT L. KARWACKI, Judges (retired), Specially Assigned.

CHASANOW, Judge.

The two consolidated cases before this Court, Noble, et al. v. Bruce, No. 7, September Term 1997, and Fauntleroy, et al. v. Blizzard, et al., No. 55, September Term 1997, present the identical issue of whether a nonclient, testamentary beneficiary may maintain a cause of action for professional malpractice against an attorney where it is alleged that the attorney either provided negligent estate planning advice to the testator, or negligently drafted the testator's will, in a manner which resulted in significant estate and inheritance taxes that could have been avoided.

I.

A. Noble

The Noble beneficiaries are six of eight surviving children of Earl and Florence Long. The Longs retained Respondent, Charles A. Bruce, Jr., to advise them in planning their estates and preparing their wills. The Longs owned, as joint tenants with right of survivorship, approximately 366 acres of real property including several farms, securities worth $660,000, and cattle worth approximately $30,000. Bruce prepared "mirror wills" which were executed on July 29, 1991. Under these wills, Mr. Long bequeathed all of his interest in the Longs' property to Ms. Long if she survived him, and Ms Long bequeathed all of her interest in their property to Mr. Long if he survived her. Both of the wills also provided that upon the death of the survivor: 1) the family residence and curtilage on one of the farms would pass to Lorraine Kulyncyz, one of the Longs' daughters who is not a party in this case; 2) the Longs' partial interest in certain other real property passed to Mr. Long's sister; and 3) the remainder of the estate passed to the Longs' eight children as joint tenants with right of survivorship, subject to a life estate in Thomas F. Long, one of their sons who is not a party in this case.

On August 28, 1991, Mr. Long died, and all of his property passed to Ms. Long pursuant to the will and by operation of the joint tenancies, free from federal estate taxes under the marital deduction provided in 26 U.S.C. § 2056. Shortly after Mr. Long's death, Ms. Long transferred all of her real property to Lorraine Kulyncyz and Thomas F. Long. ¹ On June 22, 1994, Ms. Long died.

On August 25, 1994, the beneficiaries filed a legal malpractice action against Bruce alleging that Bruce was negligent in failing to advise Mr. and Ms. Long that they could each shelter up to $600,000 in both of their estates from any federal estate tax under 26 U.S.C. § 2010, the Unified Credit Against Estate Tax. If both spouses use the Unified Credit, up to $1.2 million can pass to beneficiaries free of federal estate tax. In order for both spouses to take advantage of the Unified Credit, one mechanism commonly used is the bypass, or credit shelter, trust for the benefit of the surviving spouse. In his affidavit in support of summary judgment, Bruce asserted that he advised the Longs of the ramifications of federal estate and gift tax laws and the benefits of utilizing a bypass trust, but the Longs rejected such a mechanism because it would interfere with their control over their assets during their lifetimes.

Prior to discovery, Bruce filed a motion to dismiss the complaint, or in the alternative, a motion for summary judgment. On July 26, 1995, the Circuit Court for Somerset County granted summary judgment in favor of Bruce determining that the beneficiaries would be unable to prove what the Longs' intentions were and unable to contradict Bruce's assertion in his affidavit that he "fully advised" the Longs regarding the ramifications of federal estate and gift taxes and the use of the bypass trust. The circuit court noted that the issue of "whether third party beneficiaries may maintain an action for damages against an attorney, with whom they have no privity, for alleged failure to draft a will properly so as to give effect to the testator's intended disposition of property" was "irrelevant."

On appeal, the Court of Special Appeals, in an unreported per curiam opinion, affirmed the judgment of the circuit court on other grounds holding that the Noble beneficiaries did not have standing to sue Bruce as third-party beneficiaries under Kirgan v. Parks, 60 Md.App. 1, 478 A.2d 713, cert. denied, 301 Md. 639, 484 A.2d 274 (1984). On March 14, 1997, this Court granted the Noble beneficiaries' petition for writ of certiorari.

B. Fauntleroy

Because the issue before us arises from the granting of a motion to dismiss the complaint, we must assume as true all well-pleaded material facts in the complaint, the exhibits, and any reasonable inferences that may be drawn from them. See Flaherty v. Weinberg, 303 Md. 116, 135-36, 492 A.2d 618, 628 (1985). The complaint alleges that the Fauntleroy beneficiaries are the sole beneficiaries of a residuary clause contained in the will of the late Sue M. Jackson. Ms. Jackson retained T. Hughlett Henry, Jr., ² and his law firm, Henry & Price, to advise her in planning her estate and preparing her will. Ms. Jackson's will was executed on March 11, 1983. Ms. Jackson owned a significant amount of stock in a company called Pittsburgh Des Moines Steel Company (PDM). The 1983 will bequeathed her shares of PDM stock to the children and grandchildren of William R. Jackson, Ms. Jackson's brother-in-law. The 1983 will also directed that all of the taxes be paid out of the residuary estate. On March 29, 1983, Henry sent to Ms. Jackson a letter estimating the federal estate taxes that would be imposed on her estate at her death. The letter included the following statement by Henry: "I do not know whether you were aware that the tax problem in your estate is as bad as it is and I am all the more pleased that we have made the decision to have the bulk of the PDM stock pay its own share of that tax."

Ms. Jackson later added two codicils to her 1983 will, but neither codicil changed the clause regarding payment of taxes. In 1988, Ms. Jackson revoked the 1983 will and executed a new will also prepared by Henry and his firm. However, the 1988 will was substantially the same as the 1983 will, leaving intact the clause directing all of the taxes to be paid out of the residuary estate. Ms. Jackson subsequently executed two codicils on March 29, 1990 and on January 28, 1992. Again, these codicils did not alter the clause regarding payment of taxes.

In April 1990, Ms. Jackson and PDM entered into a stock purchase agreement which provided that upon Ms. Jackson's death the estate would sell all of Ms. Jackson's PDM shares back to PDM at a price equal to the closing price of the stock as of the date of her death. Ms. Jackson's obligation under this agreement was conditioned on the transaction being treated as a sale or exchange, rather than a dividend, for tax purposes. The stock purchase agreement, however, was never implemented upon Ms. Jackson's death because this condition could not be satisfied. The agreement was ultimately declared null and void.

On January 10, 1994, Ms. Jackson died. In addition to a farm, Ms. Jackson's estate included 44,816 shares of PDM stock, worth approximately $1.4 million. Because the stock purchase agreement was not implemented, the PDM stock passed to certain beneficiaries as provided in Ms. Jackson's 1988 will and its codicils. The estate and inheritance taxes totaled approximately $910,000 and were borne by the Fauntleroy beneficiaries as residuary beneficiaries.

On January 8, 1997, the Fauntleroy beneficiaries filed a complaint against Respondents, Sara N. Blizzard and W. Thomas Fountain, Personal Representatives of the Estate of Henry ³ and his law firm, alleging that Henry and his firm committed malpractice by negligently preparing the 1983 will so that all taxes would be paid out of the residuary estate, contrary to Ms. Jackson's intent. Respondents subsequently filed a motion to dismiss or, in the alternative, a motion for summary judgment. Prior to discovery, a hearing was held on Respondents' motion, and the Circuit Court for Talbot County granted Respondents' motion to dismiss on April 4, 1997, ruling that the Fauntleroy beneficiaries lacked standing to sue Respondents under Kirgan.

On April 10, 1997, the Fauntleroy beneficiaries appealed to the Court of Special Appeals and also filed in this Court a petition for writ of certiorari. This Court issued a writ of certiorari on July 30, 1997 prior to proceedings in the Court of Special Appeals.

II.

The issue before this Court has been the subject of many articles in recent years. See, e.g., Martin D. Begleiter, Attorney Malpractice in Estate Planning--You've Got to Know When to Hold Up, Know When to Fold Up, 38 KAN. L. REV . 193 (1990); Helen Bishop Jenkins, Privity--A Texas-Size Barrier to Third Parties for Negligent Will Drafting--An Assessment and Proposal, 42 BAYLOR L.REV. 687 (1990); Gerald P. Johnston, Legal Malpractice in Estate Planning--Perilous Times Ahead for the Practitioner, 67 IOWA L. REV. 629 (1982). See generally Symposium, The Lawyer's Duties and Liabilities to Third Parties, 37 S. TEX. L. REV. 957 (1996). We last addressed the issue of whether an attorney may be held liable to a nonclient for legal malpractice...