Recent Developments in Legal Malpractice
Neumeier, Richard J., Defense Counsel Journal
This article originally appeared in the January 2014 Professional Liability Committee newsletter.
STEWART Title Guarantee Company (Stewart) hired Witherspoon, Kelly, Davenport and Toole, P.S. (Wither spoon) to defend its insured, Sterling Savings Bank (Sterling) from a claim by Mount West of lien property priority on real property. The claim was resolved in favor on Mount West and Stewart then sued Witherspoon for malpractice, alleging that it improperly failed to raise the defense of equitable subrogation. Witherspoon defended on two grounds: (1) it owed no duty because Seeding was its client, not Stewart and (2) the proposed affirmative defense was not viable. The trial judge had determined that Stewart "was an intended beneficiary of Witherspoon's representation of Sterling because of Stewart Title's retention letter ... [which] created a contractual duty on the part of Witherspoon to keep Stewart Tide informed about the progress of the lien prior to litigation." (1) Nonetheless, summary judgment was entered in favor of Witherspoon on the ground that the proposed affirmative defense was not viable. On appeal, the Washington Supreme Court rejected the trial court's analysis that the insured was the intended beneficiary of Witherspoon's representation because its interest was aligned with its insured. The Court held that a duty to inform did not give rise to a broad duty of care. With a touch of understatement, the court acknowledged "We recognize that other jurisdictions have come to a different conclusion ... (citations omitted)." (2) In fact all other jurisdictions which follow the minority rule that defense counsel retained by the insurer to defend its insured has only the insured as a client, permit the insurer to recover damages for malpractice. (3)
Cusack v. Greenberg, Traurig, LLP affirmed dismissal of a malpractice claim where there was no attorney-client relationship between the plaintiffs and the law firm. (4) The complaint stemmed from plaintiff's failed efforts to have Greenberg Traurig (Greenberg) counsel for plaintiff's former employer, American Defense Systems, Inc. (ADSI) issue a corrected opinion letter to facilitate removal of restrictive legends on his stock certificate. Greenberg had issued an opinion letter that misstated that it represented the plaintiff, rather than ADSI. Greenberg asserted that ADSI subsequently directed it not to issue a corrected letter because ADSI maintained, in a separate law suit, that plaintiff fraudulently procured his employment and the stock. Because Greenberg "represented ADSI, not its shareholders or employees and, thus, not plaintiff," the order allowing the motion to dismiss the malpractice claim was properly allowed.
Indiana permits a malpractice action by a beneficiary under a will against the attorney who drafted that will on the basis that the beneficiary is a known third party. (5) Following Mary Linder's death, a group of her relatives brought a malpractice action against the drafter of her will, Berton O'Bryan (O'Bryan). The relatives were not specifically named in the will but were listed on a form that O'Bryan had given Linder for the purpose of making bequests to her intended beneficiaries. The list was referenced in the will but not signed, dated, or witnessed. The relatives claimed that as a result of O'Bryan's negligence in drafting the will, bequests that Linder intended to make to them failed. O'Bryan claimed he never saw the list before Linder's death. Summary judgment for O'Bryan was vacated because
Article II of Linder's will conclusively established that O'Bryan knew that she intended to benefit third parties whom she would list on a separate form that he had provided to her. To hold that O'Bryan did not owe the relatives a duty in this situation would immunize and thus encourage even more egregious acts of malpractice, to the detriment of innocent third-party beneficiaries. …