# FILED
May 6, 1996 Cecil W. Crowson Appellate Cou rt Clerk IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE

FOR PUBLICA

TION CAN DO, INC. PENSION AND PROFIT ) SHARING PLAN AND SUCCESSOR ) PLANS, INDIVIDUALLY AN D AS A ) Filed: May 6, 1996 TRUSTEE FOR GEORGE W. ) HOLDER, JR., ) ) Plaintiff-Appellee, ) DAVIDSON CHANCERY ) Vs. ) ) ) HON. IRVIN KILCREASE, MANIER, HEROD, HOLLABA UGH ) CHANCELLOR & SMITH, a professional corpor ation, ) C. KINIAN COSNER, JR ., and ) H. ROWAN LEATHERS, III, ) ) Defendants-Appellants. ) No. 01-S-01-9501-CH-00013

For Appellant

s: For Appellee: Robert L. Trentham Alfred H. Knight Mark Tyler Seitz WILLIS & KNIGHT TRABUE, STUR DIVANT & DEWITT Nashville, Tennessee Nashville, Tennessee



# O P I N I O N

COURT OF APPEALS REVERSED; JUDGMENT O F TRIAL COUR T REINSTATED. ANDERSON,C.J.-2- This case presents a questi on of first impression in Tennessee: whether or not a legal malpracti ce claim is assignabl e. We have determined that sound public policy reasons militate against allowing assignment of legal malpractice actions. We, therefore, reverse the Cour t of Appeals and dismiss the complai nt.

BACKGROUND This appeal arises from the trial court's grant of the def endant law firm's motion to dismiss the complaint for failure to state a claim. A ccordingly, the facts as alleged in the complaint must be taken as true, and are as f ollows.
George W. Holder, Jr., employed the de fendant law firm, Manier, He rod, Hollabaugh and Smith, to perform certain legal serv ices for him. Later, Holder individually filed a voluntary bankruptcy petition. Holder owned all the stock in Can Do, Inc. and was the pr imary beneficiary of and se rved as trustee of the Can Do, Inc. Pension and Profit Shar ing Plan.

The bankruptcy trustee, William L. New port, transferred to the Can Do, Inc. Pension and Profit Sharing Plan certain assets, including an assignment of "any cause of action or right to payment the bankruptcy estate may have against the following . . . C.Kinian Cosner, Jr. and M anier, Herod, Hollabaug h and Smith."

Following the trans

fer, Can Do, Inc., filed this c omplaint asserting that the law firm's mismanagement of Hol der's legal affairs resul ted in his bankruptcy. The law firm moved to dismis s the complaint for failure to st ate a claim, upon the gr ou nd s t ha

t t he "c la im fo r l eg al ma lp ra ct ice, if an y, be lo ng s to G eo rg e W. Holder and cannot, as a matter of l aw, be assigned."-3- The tria l court

dismis sed the c

omplaint, becau se "the a ssignm ent of a legal malpractice claim in Tennessee is void and invalid as against public policy because it constitutes champer ty and maintenance and would frustrate, if not entirely endanger, the attorney -- client r elationship."
The Court of Appeals reversed, concluding that a legal malpractice cause of action survives the death of the assignor and therefore i s assignable, and adopted the minority view that assignment of such claims does not violate public policy.

We granted the defendants' application to consider this important question of first impressi on in this State. Fo r the reas ons artic ulated b elow, we have concluded that legal malpractice claims are no t assignable.

ASSIGNMENT Because a legal malpracti ce claim is a chose in action, we begin our analysis by reviewing the assignability of choses in action. With few exceptions, at early common law, a chose in action, which is a right of proceeding in a court of law to procure payment o f a sum of money or to recover a debt, was not assignable. Black's Law Dictionary , 241(6th ed. 1990); Moran v. Adkerson , 168 Tenn. 372, 79 S.W .2d 44 (1935). The rule of nonassignability was so strictly construed that it applied ev en though the original pr omise was made to the promisee and his assigns. Hutsell v. Citiz ens' Nat. Bank , 166 Tenn. 598, 64 S.W.2d 188 (1933).

One reason cited to support the rule of nonassignability was that personal rights are nontransferable

. See Picadilly, Inc. v . Raikos , 582 N.E.2d 338 (Ind. 1991). However, the major purpose of the rule was to prevent champerty and-4- maintenance. In Tennessee, "champerty " has been defined as "a bargain w ith a plaintiff or defendant in a cause to divide the m atter sued for, if they prevail, whereupon the champertor is to carry on the party

's suit at his own ex

pense;" whereas, "maintenance” has been defined as " an officious intermeddling in a suit which no way bel ongs to one by maintaining or assisting either

party, with money or otherwise, to pros

ecute or defeat it." Spicer v. Jarrett , 61 Tenn. 454, 457 (1873) (citations omitted)

.
The rule of nonassignability began to gradually e rode over time as the public need to expand the quantity of transferable property in comm erce increased. Under modern statutes and decisions, the assignability of a cho se in action is now the gener al rule, and nonassignabil ity the exception. 6A C.J.S., Assignments

§§ 6 and 7 (1975). For ex ample, in Tennessee, any contractbased chose in action, exc ept those involving

matters purely personal in nature, is assignable. See Tenn. Code Ann. § 47-50-102 (1995); Berger v. Paalzow, 40 Tenn. App. 153, 289 S.W.2d 861 (1956). Tort actions inv olving injuries to property are also assi gnable, East Tenn G. & V.R.R. v. H enderson , 69 Tenn. 1 (1878); Tenn. Code Ann. § 20-5-120 ( 1994), while tort acti ons involving per sonal injuries and wrong s done to the person, reputation, or feelings of the injured party continue to be unassi gnable. See Annotation, Assignability of Cl aim for Personal Injury or Death , 40 A.L.R.2d 500 (1975); 6A C.J .S. § 7, Assignments (1975).

In the absence of a statute, courts d etermining whether a c hose in action is assignable general ly apply the tradit ional common law test - w hether the action would survive the death of the assignor and pass to the personal representativ e. See e.g. , Haymes v Halliday , 151 Tenn. 115, 268 S.W. 130 (1925). For example, in this case, the Court of Appeals applied that tr aditional survivability-5- test and determined that legal malpractice actions surv ive the death of the assignor and are assig nable.

Although a chose in action mus t survive to be ass ignable, not every action that survives is assignable. For exa mple, claims for personal inj uries survive, pursuant to Tenn. Code Ann. § 20-5-10 2 (1994), but generally are not assignable.

In modern times, the common law t est of determining the issue of assignabi lity sole ly by whether the cl aim survives the ass ignor's de ath seems outdated and misplaced. Other state courts have experienced dif ficulty in applying the survival test and have approached this issue by considering factors such as public policy

considerations, whic

h vary depending upon the particular type of action under examinati on. Joos v. Drillock , 338 N.W.2d 736, 738 (Mich. App. 1983).

Public policy is, i n fact, the primary consider ation upon which courts fr om other jurisdictions hav

e focused in determining the ass ignability of a lega l malpractice action. For example, the Indiana Supreme Cour t stated:

Today, it seems anachronisti c to resolve the issue of the assignability of a l egal malpractice claim by deciding whether such a claim would sur vive the client's

death. . . . As is sometimes the case with the common law , the rule has outlived the reason for its creati on. The custom s, beliefs, o r needs of a pr imitive t ime establish a rule or a formula.In the course of the centuries the custom, belief or necessity disappears, but the rule r emains. Where such is the case, this Court has bee n willing to reex amine the basis of the rule. Assignment should be permitted or prohibited based on the effect it will likely have on modern society, and the legal system in particular.-6- Picadilly, Inc. v . Raikos , 582 N.E.2d at 341 (internal citations and quotations omitted).

We agree with the Indiana Supreme Court that in resolving the question of assignability of legal malpractice actions, publ ic policy considera tions, rather than the traditional survivability test, should guide the analysis. Indeed, it is particularly appropr

iate for this Court to ex amine the public policy c onsiderations that bear upon this question as we have exclus ive original jur isdiction over matters relating to the pr actice of law. Petition of Burson , 909 S.W.2d 768 (Tenn. 1995). Likewise, we conclude that resoluti on of the question should not turn on whether a claim for legal malpractice is classified as a breach of contract claim or a personal injur y claim. Wagener v. McDonald , 509 N.W.2d 188, 190 (Minn. App. 1993). Rather than straining to fit the cl aim into a category, w e think the better approach is to resolve the question on public policy grounds.

Employing that analys is, a majority of juri sdictions have concluded that public policy consid erations militate agains t allowing assig nment of legal malpractice actions. Fr ancis M. Dougherty , Annotation, Assignability of Cl aim for Legal Malpractice , 40 A.L.R.4th 684 (1985 & Supp. 1995) ; Picadilly, Inc. v. Raikos , supra ; Bank IV Wichita, Nat'l Ass'n v. Ar n, Mullins, Unruh, Kuhn & Wilson , 827 P.2d 758 (Kan. 1992); Earth Science Laboratories, Inc. v. Adkins & Wondra, P.C. , 523 N.W.2d 254 (Neb. 1994); Chaffee v. Smith , 645 P.2d 966 (Nev. 1982); Schroeder v. Hudgins , 690 P.2d 114 (Ariz. App. 1984); Goodley v. Wank & Wank, Inc , 133 Cal. Rptr. 83 (Cal . App. 1976); Roberts v. Holland & Hart , 857 P.2d 492 ( Colo. App. 1993); Washington v. Fireman's Fund Ins. C o. , 459 So.2d 1148 (Fla. App. 1984); Christison v. Jones , 405 N.E.2d 8 (Ill. App. 1980); Coffey v. Jefferson County Bd. of Educ. , 756 S.W.2d 155 (Ky. App.-7- 1988); Joos v. Drillock , supra ; Wagener v. McDonald , supra ; City of Ga rland v. Booth , 895 S.W.2d 766 (Tex. App. 1995); Continental Cas. Co. v . Pullman, Comley, Bradley & R

eeves , 709 F. Supp. 44 (D. Conn. 1989) , aff'd 929 F.2d 103 (2nd Cir. 1999); Scarlett v. Barnes , 121 B.R. 578 (W.D. Mo. 1990); contra Thurston v. Continental Ca s. Co. , 567 A.2d 922 (Me. 1989); Collins v. Fitz water , 560 P.2d 1074 (Or. 1977), overruled on other gr ounds Lancaster v. Royal Ins. Co. , 726 P.2d 371 (Or. 1986); Hedlund Mfg. Co., Inc. v. Weiser, Stapler & Spivak , 539 A.2d 357 (Pa. 1988); American Hemisphe re Marine A gencies, Inc. v. Kreis , 244 N.Y.S.2d 602 (N.Y. Sup. 1963).

The many public policy r easons underlying these courts' rejection of assignability of legal malpractice claims w as perhaps best summarized by the California appellate court i n Goodley , which was the firs t to flatly confront the issue. There, the court focused on the unique character of leg al services, the personal nature of the attorney 's duty to the client, an d the confidentiality of the attorney-client rel ationship.

The assignment of such claims could relegate the legal malpractice action to the market place and c onvert it to a commodity to be exploited and transferred to economic bidders who hav e never had a professional relationship with the attorney and t o whom the attorney has never ow

ed a legal duty, and w

ho have never had any prior connection with the assignor or his r ights. The commercial aspect of assignability

of choses in action arising out of legal malpractice is rife with probabilities that co uld only debase the legal profession. The almost certain end result of m erchandizing such causes of action is the lucrative business of factoring malpractice claims which would encourage unjustified lawsuits against members of the legal profession, g enerate an increase in leg al malpractice litigati on, promote champerty and force att orneys to defend themselves against str angers. The endless complic ations and litigious intri cacies arising out of suc h commercial activiti es would place an undue burden on no t only the legal profess ion but the already overburdene d judicial system, r

estrict the availabil ity of competent legal services, embarrass the attorney-client relationship and imperil the sanctity of the highly confidential and fiduciary relationship existi ng between attorney and client.-8- Id , 133 Cal. Rptr. at 87.

We generally agree with the Goodley court and conclude that assi gnment of legal malpractice actions would both endanger the attorney-client relationship and commercialize legal malpractice lawsuit

s. We are particularly concerned that the relationship between an attorney and client remain a fid uciary relationship of the very highest character. As

a result of that relationshi p, the attorney owes the client not only the duty to use skill, prudence and diligence in the rendition of services , but also the duty to act l oyally towards the client and to maintain client confidences. Tenn. Sup. Ct. R. 8, Canons 4 and 5. These rules and their enforcement by this Court protect the public, and a violation m ay result in disciplinary ac

tion, as well as a legal malpractice claim. See also Wage ner v. McDonald , 509 N.W.2d at 191. Allowing free assignment would be a disservice to the public by compromisi ng both the attorney's dut y of loyalty and the dut y of confidentiality, result ing in a weakened attor ney-client relations hip.
As the Indiana Supreme Court recognized, "[a]n adversary might well make a favorable settlement offer to a j udgment-proof or financially strapped client in exchange for the assignment of that client's right to bring a malpractice claim against his attorney. Lawyers involved in such negotiations would quickly realiz e that th e inter

ests of t heir cl ients w

ere inc ompatibl e with their o

wn sel finterest." Picadilly, Inc. v . Raikos , 582 N.E.2d at 343; City of Garland v. Booth , 895 S.W.2d at 770. The risk that allowing assignments of claims would impair an attorney's loyalty would be present therefore, not only in those cases in which a client assigned a malpr actice claim, but in all other cases as well.

Moreover, assignment would compromise the duty of confidentiality.-9- Whenever an attorney is sued by a client for legal malpractice, th e attorney is permitted to reveal confidenti al client information reasonabl y necessary to establish a defense. Tenn. Sup. Ct. R . 8, DR 4-101(C)(4).So long as the client brings the malpractice claim, the client has the power to drop the lawsuit to avoid the disclosure of embarrassi ng confidential communications. Id . Once a legal malpractice claim is ass igned, however, the client loses control of the l itigation. The assignee controls the claim and may have little or no concern for the client's sensitivities. The client could thereby be harmed and such disclosures would foster disrespect for the attorn ey-client relations hip in general. Picadilly, Inc. v. Raikos , 582 N.E.2d at 343-44; Wagener v. McDonald , 509 N.W.2d at 192.

Finally, in our v

iew, the commercializ

ation of legal malpractice c laims that would be fostered by all owing assignment is inimical to the legal profession and the administration of justice."Unlike any other commer cial transaction, the client-lawyer relationship is structured to function within an adv ersarial legal system. In order to operate within this system, the relationship must do more than bind together a client and a lawyer. It must also work to repel at

tacks from legal adversaries.Those who are not priv y to the relationship ar

e often purposefully excluded because they are pursuing interests adverse to the client's interests." Picadilly, Inc. v . Raikos , 582 N.E.2d at 343-44. Assignment would undermine the fundamental structure and function of the relationship and cr eate a risk of collusion that must not be countenanced. City of Garland v. Booth , 895 S.W.2d at 770; Wagener v. McDonald , 509 N.W .2d at 19 1. Accord ingly, we conclude that considerations of public policy prohibi t the assignment of legal malpractice claims in Tenness ee.

CONCLUSION-10- Because we have determined that the public policy of this State should prohibit the assignment of legal malpractice actions, th e judgment of the Court of Appeals is reversed, and the judgment of the trial court dismissing this action is reinstated. Costs of this appe al are taxed to the plainti ff-appellee, Can Do, Inc., for which execution may issue if necessary.

________________________________ RILEY ANDERSON, CHIEF JUSTICE

CONCUR: Drowota, Reid, Birch, and White, JJ.