How to Avoid Having Strangers for Clients

There are three things which protect lawyers from owing duties to strangers. They are:

  • The attorney-client privilege;
  • Client confidentiality (ie ABA RPC Rule 1.6); and
  • Undivided loyalty attorneys owe clients (ie Comment [1] to ABA RPC Rule 1.7).

On the other hand, a concept which started in California may have mushroomed some national dents in the certainty lawyers used to have about knowing who they owed duties to. There is a difference between having more than a single client and having one client but owing duties to non-clients. This very short note deals briefly and generally with the possibility of owing duties to non-clients.

Third Party Intended Beneficiaries - Goodman v Kennedy 16 Cal 3d 335 (1976), Lucas v Hamm 56 Cal 2d 583 (1961) used to proliferate the area of non-clients to whom lawyers owed responsibilities for years. The area was somewhat limited to wills and trusts.

Historically, Biakanja v Irving 49 Cal 2d 647 (1958) over-ruled a 1895 case insisting on privity and established factors for balancing case by case interests to determine when a lawyer owed duties to "third parties". The factors or sub-elements are similar to elements that state uses to determine any type of duty as a matter of law. Rowland v Christian 69 Cal 2d 108 (1958). Biakanja has been nationally recognized for its articulation of factors to consider to determine policy instead of going back to the old days of "cutting proximate causal chains" in some mysterious and sometimes capricious manner. "It would appear that courts are more willing to apply the balancing test to extend an attorney's duty to nonclients in cases in which the attorney's representation of his client has essentially been of a nonadversarial nature . . ." Pelham v Griesheimer 92 Ill 2d 13,21, 440 NE 2d 96, 100 (1982). American Law Institute's former head, Geoffrey Hazard draws a sharp difference between transactional lawyers to whom liability frequently attaches to non-clients and litigators who are usually adversarial to all third parties. Mallen and Smith note that "No jurisidiction, . . . has recognized a duty in extreme situations, such as a claim of negligence by an adversary in litigation." (Legal Malpractice 5th Edition, 693).

Under the multi-factor balancing test an attorney who represents a borrower may owe a duty of care to the non-client lender. Trask v Butler 123 Wash 2d 835, 872 P 2d 1080 (1994) Washington. Other jurisdictions applying the balancing test include Arizona ( Fickett v Superior Court 27 Ariz App 793 (1976), Florida ( Mcabee v Edwards 340 So 22d 1167 (Fla Dist Ct 1976), Minnesota (Marker v Greenberg 313 NW 2d 4 (Minn 1981), North Carolina (Jenkins v Wheeler 69 NC App 140 1984), Oregon (Metzker v Slocum 272 Or 313 (1975), and Wisconsin (Auric v Continental Casualty Co 111 Wis 2d 507, 331 NW 2d 325 (1983).

ABA Journal, December 1995 in its multi-authored articulation of "Third Party Problems" indicated five "steps to avoid trouble". One was "adopting a broader sense of who the real clients may be in a case." The annotation on "Attorney's Liability to One Other Than Immediate Client, For Negligence in Connection With Legal Duties" 61 ALR 4th 615 lists four different bases for liability to others than the person retaining the lawyer:

1. Third Party Beneficiary Analysis;

2. Negligence or duty analysis;

3. Balancing of factors analysis and

4. Statutory or constitutional basis.

Legal Malpractice (4th Ed) Mallen & Smith added:

5. Negligent representation (@510);

6. Erroneous opinions (@ 514);

7. Reasonable reliance of a non-adversarial party (@538) and;

8. Foreseeably injured non-adversarial parties (@540). [Mid-Western Electric, Inc v DeWild Grant Reckert & Associates Co 500 NW 2d 250, 253 (1993)]

In their just released Fifth Edition, separate, whole chapters are devoted to Liabilities to Non-Clients for negligence as well as in contract and for intentional torts.

Case law appears to establish:

9. Implied in fact beneficiaries;

California has also added:

10."implied duty" or "co-client theory" [Johnson v Superior Court of San Diego County (1995) 38 Cal App 4th 463.] In deciding that duty of limited partnership counsel to limited partners was a question of fact a small number of constituents without independent counsel was a pertinent factor.;

11. Proxy Obligation or vicarious assumption of fiduciary obligation [Morales v Field et al 99 Cal App 3d 307 (1979)], and recently;

12. Implied in fact contract. Rallis v Cassady (2000) 84 Cal App 4th 285.

In a 1985 Washington article bemoaning the loss of privity the author opined that "the courts may adequately protect the attorney-client relationship from the effects of unlimited liability by limiting the scope of legal malpractice liability to known third parties whose behavior the attorney and client intended to affect." 61 Wash Law Review 761, 770. This appears to come full circle to the common law rule seeking the "end and the aim" of a contract enunciated by Justice Cardozo in Glanzer v Shepard (1922) 233 NY 236, 135 NE 275). Biakanja likewise applied "the end and the aim". Another way of saying the same thing is to examine the Reasonable Expectations of the parties. ("The Path to Flatt and Beyond-Using the Client Adversarial Expectancy Test to Avoid Liability to Non Clients", Verdict, The Association of Southern California Defense Counsel, 1st Quarter, 1995 16 (cited by Mallen & Smith.) 5 Witkin Summary of California Law 753 notes that Biakanja and Lucas recognize a duty of care to guard against foreseeable damage to the economic expectations of third persons.

Few recent California decisions have actually applied the “balancing” factors even though they are still viable all over the country: The extent to which the transaction was intended to affect the plaintiff; the foreseeability of harm to plaintiff; the degree of certainty plaintiff suffered injury; the closeness of the connection between the defendant's conduct and the injury suffered; the moral blame attached to the defendant's conduct and the policy of preventing future harm. [Biakanja supra at 650]

California's Rule of Professional Conduct 3-600 is fairly close to ABA Rule 1.13 These rules require that a lawyer representing an entity, for example, shall conform his or her allegiance to the entity. While not precluding representation of individuals close to the entity, the rules provide safeguards to insure that loyalty to the entity remains paramount. Most jurisdictions agree that a lawyer's loyalty to the intended client is paramount. Because a lawyer cannot "serve two masters" wanabe non-clients cannot usurp any of the lawyer's fidelity. The “tripartite” relationship has in some jurisdictions (ie, California) always placed lawyers on the horns of a dilemma since both the insured client and the insurer who pays the bills have expectations. Most jurisdictions honor ABA RPC Rule 1.7's comment [13] which precludes being influenced by being paid by non-clients.

There are unlimited situations in which a non-client might use one of the above theories or invent some more to sue a lawyer for legal malpractice. Long before ENRON and a federal agency’s legislative attempt to force lawyers to act as government “squealers” bad advice to an S&L exposed lawyers to liability to non-clients. Lincoln Savings & Loan Association v Wall 743 F. Supp. 901 (DDC 1990).

For these reasons we need to always follows some simple rules to try to avoid liability to non-clients. They are:

  1. Never serve two masters; and

  2. Always know who our clients are;

  3. Give only our clients undivided loyalty, confidentiality; and

  4. If any reasonable person or entity, would, for any reason, infer we are taking care of their interests or that we are anything other than neutrals or adversaries, let them know in writing who we are. Tell them in plain talk: “I have only one client in this matter and I regret it’s not you.”

Copyright © 2005 Phillip J. Feldman, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.

This article was last reviewed or amended on Nov 11, 2014.