By: Dana K. Maine and William Ezzell
The landscape regarding lawyers' liability to third parties is shifting ever so slightly. In Green v. Morgan Properties, 215 N.J. 431, 73 A.3d 478 (September 17, 2013), tenants sued over the landlord's attorneys’ collection of liquidated attorney's fees incurred during evictions. The landlord, Morgan Properties, owner-managers of 131 apartment complexes, routinely initiated eviction proceedings against delinquent tenants and sued for unpaid rent. As is common in residential leases, the leases required payment of fixed legal fees in the event of eviction proceedings. As a large-scale residential property manager, Morgan Properties employed an in-house attorney to handle evictions. The tenants filed a class action against the landlord and the in-house attorney. Among other claims, the tenants claimed that the in-house counsel was liable for violating the state consumer fraud act and for professional negligence.
The nature of the state statutory claim against the attorney was that it was an unconscionable business practice to include the attorney's fees provision in the leases when the amount included did not accurately represent the actual amount of fees. In finding that the complaint did not state a claim against the attorney for this claim, the court noted that the tenants did not allege that the attorney had any involvement with drafting the allegedly unconscionable lease.
The tenants asserted the attorney was liable for negligence on two grounds - first, liquidated fee provision constituted impermissible fee sharing with non-lawyers (the corporate division of Morgan Properties) in violation of New Jersey's Rules of Professional Conduct, and, second, the attorney's actions constituted legal malpractice. The court based the dismissal of the first theory on the fact that a violation of the state professional conduct rules cannot serve as a basis for civil liability. As for the malpractice claim, the court outlined where a third-party (non-client) can sue an attorney for malpractice.
The court recognized the extremely narrow circumstances when an attorney could be liable to third-parties, specifically, when the attorney knows or should know non-clients would rely on representations, such as the sale of real estate. The court concluded the tenants' claims did not fall within this exception. In most states, third-parties who are not in privity with an attorney may recover only when the known third party's reliance was the desired result of the misrepresentation. McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 792 (Tex. 1999); Mehaffy, Rider, Windholz & Wilson v. Cent. Bank Denver, N.A., 892 P.2d 230, 236 (Colo. 1995).
In Georgia, courts have historically aligned with the majority rule: before an action for malpractice or negligence can lie against an attorney, there must be a legal duty from the attorney to the plaintiff. Williams v. Fortson, Bentley & Griffin, 212 Ga. App. 222, 224, 441 S.E.2d 686, 688 (1994). Nonetheless, Georgia courts expressly recognize professional liability to third parties for whom the information was intended. Martha H. W. Trust v. Mkt. Value of Atlanta, Inc., 262 Ga. App. 90, 584 S.E.2d 688 (2003)
The recent decision by the Georgia Supreme Court in Villanueva v. First American Title Insurance Company, 292 Ga. 630 (2013) addressed liability to non-clients. In Villanueva, the Supreme Court concluded a closing attorney in a mortgage refinance transaction could be held liable for malpractice by the non-client title insurance company because legal malpractice claims are not per se unassignable (contrary to prior case law).
The Georgia Supreme Court went to great lengths, however, to limit the weight and scope of the decision and explicitly stated the facts of the case neither created a personal tort (an assignable claim) nor an issue of professional responsibility. In fact, in rejecting the tenants' malpractice claims, the New Jersey Supreme Court in Greene cited cases similar to Villanueva as support for the limited exceptions when third-parties can bring legal malpractice claims.
No doubt, legal professional liability extends beyond the attorney-client relationship but opportunities for such exposure are narrow. While courts in Georgia and the majority of courts nationwide maintain the limited exceptions where third-parties may bring malpractice suits, the occurrence of such attempts in many different contexts is nevertheless alarming.