Case Name: LAW OFFICE OF DAVID J. STERN, P.A., Petitioner, v. SECURITY NATIONAL SERVICING CORPORATION, Respondent
Court: Florida Supreme Court
Jurisdiction: Florida
Decision Date: 2007-07-05
Citations: 969 So. 2d 962
Docket Number: No. SC06-361
Parties: LAW OFFICE OF DAVID J. STERN, P.A., Petitioner, v. SECURITY NATIONAL SERVICING CORPORATION, Respondent.
Judges: WELLS, ANSTEAD, and CANTERO, JJ., concur.
Reporter: Southern Reporter, Second Series
Volume: 969
Pages: 962–976

Head Matter:
LAW OFFICE OF DAVID J. STERN, P.A., Petitioner, v. SECURITY NATIONAL SERVICING CORPORATION, Respondent.
No. SC06-361.
Supreme Court of Florida.
July 5, 2007.
Rehearing Denied Dec. 3, 2007.
Robert M. Klein, Gregory S. Glasser, and Cayla B. Tenenbaum of Stephens, Lynn, Klein, et al., Miami, FL, for Petitioners.
Nancy W. Gregoire of Bunnell, Woulfe, Kirschbaum, Keller, McIntyre, Gregoire, and Klein, P.A., Fort Lauderdale, FL, for Respondents.

Opinion:
BELL, J.
Law Office of David J. Stern, P.A. (Stern) seeks review of the Fourth District Court of Appeal's decision in Security National Servicing Corp. v. Law Office of David J. Stem, P.A., 916 So.2d 934 (Fla. 4th DCA 2005), on the ground that it expressly and directly conflicts with three decisions of this Court, Cowan Liebowitz & Latman, P.C. v. Kaplan, 902 So.2d 755 (Fla.2005), KPMG Peat Marwick v. National Union Fire Insurance Co. of Pittsburgh, Pa., 765 So.2d 36 (Fla.2000), and Forgione v. Dennis Pirtle Agency, Inc., 701 So.2d 557 (Fla.1997). We have jurisdiction. See art. V, § 3(b)(3), Fla. Const.
This case involves a legal malpractice claim arising out of an attempted mortgage foreclosure. Briefly, Security National alleges that Stern committed legal malpractice by filing an untimely foreclosure action and by voluntarily dismissing a previously filed, timely foreclosure action on the same mortgage. This blunder apparently occurred because Stern, having realized its error in filing the untimely action, intended to dismiss it but instead dismissed the timely foreclosure action by mistake. Stern continued to prosecute the untimely foreclosure action, and the trial court entered summary judgment against it. Meanwhile, the mortgage and note were assigned several times before Security National finally acquired them during the appeal in the foreclosure action. Security National retained Stern as counsel to represent its interests in the appeal. Ultimately, the Second District affirmed the trial court's decision on appeal.
Subsequently, Security National brought a legal malpractice action against Stern, claiming to have standing either (1) by virtue of its attorney-client relationship with Stern or (2) as the assignee of the mortgage and note involved in the underlying foreclosure action. The trial court entered summary judgment against Security National, but the Fourth District reversed. The Fourth District held that Security National has standing to sue Stern as the assignee of the mortgage and note. See Stem, 916 So.2d at 939.
Now Stern seeks review by this Court of the Fourth District's decision. For the reasons stated, we conclude that Security National lacks standing to sue Stern for legal malpractice either by attorney-client relationship or by assignment. Therefore, we quash the decision below.
FACTUAL AND PROCEDURAL BACKGROUND
The Fourth District described the facts of this case as follows:
This legal malpractice action arises out of a botched mortgage foreclosure. Se curity National is the transferee of the underlying note and mortgage....
. In 1997, the holder of the note and mortgage, UMLIC-SIX CORP., timely filed a mortgage foreclosure action. While that action was pending, UMLIC-SIX assigned the loan to EMC Mortgage. EMC hired Stern to foreclose the loan. Stern filed a second foreclosure action on the same note and mortgage on December 15, 1998. By this time, the statute of limitations had already expired, so that this 1998 foreclosure action was untimely.
On February 19, 1999, Stern substituted as counsel in the timely 1997 foreclosure suit, then five days later voluntarily dismissed that timely action, leaving only the untimely action intact. Stern essentially admits that this was malpractice.
On August 27, 1999, EMC assigned the loan to Universal Portfolio Buyers, Inc. (Universal). Stern continued on as Universal's counsel in the untimely 1998 action. On October 15, 1999, Universal assigned the loan to North American Mortgage Co. (North American). Stern remained as North American's counsel in the 1998 action.
On July 24, 2000, the owner of the encumbered property moved for summary judgment on statute of limitations grounds. On November 5, 2000, the trial court entered summary judgment for the defendant. North American appealed.
On April 30, 2001, while the appeal was pending, North American assigned the loan to Security National. The record does not reflect whether there was consideration for this transfer or whether Security National had knowledge of the status of the foreclosure at the time. Thereafter, Stern remained as counsel representing Security National, but only for a month or two.
On December 7, 2001, the second district affirmed the final judgment. [On November 5, 2002,] Security National . brought this legal malpractice action against Stern. The complaint alleges negligence in dismissing the timely 1997 action (at the time EMC owned the loan) and in failing to timely move to reinstate the 1997 action until after the motion for summary judgment was filed (potentially spánning the ownership of EMC, Universal, and North American).
Although the trial court stated in her order that she "may take issue with the fairness of such ruling," she felt bound to enter summary judgment on Stern's behalf because there was no attorney-client relationship between Stern and Security National "at the time the cause of action accrued."
Stem, 916 So.2d at 936 (citation omitted). On appeal, the Fourth District reversed, holding that under this Court's decision in Kaplan, Security National received a valid assignment of the legal malpractice claim against Stern. The Fourth District reasoned that "the malpractice action was transferred incident to the transfer of the note and mortgage," Stem, 916 So.2d at 936, and that the assignment in question did not implicate relevant policy concerns against legal malpractice assignments. See id. at 938-39.
On February 16, 2006, Stern filed a notice to invoke this Court's discretionary jurisdiction. Stern claims that the Fourth District misapplied and improperly extended our holding in Kaplan, which was expressly limited to the particular facts of that case. Stern argues that Security National does not have standing either (1) by its attorney-client relationship with Stern or (2) by an implied general assignment of the malpractice claim. We address both of these issues in turn. As stated earlier, we ultimately determine that Security National does not have standing to sue Stern for the legal malpractice it alleges.
STANDING BY ATTORNEY-CLIENT RELATIONSHIP
The Fourth District properly concluded that Security National's attorney-client relationship with Stern did not give it standing to bring a legal malpractice action based upon acts that occurred during Stern's representation of a prior holder of the note and mortgage. As the Fourth District explained:
A legal malpractice action has three elements: 1) the attorney's employment; 2) the attorney's neglect of a reasonable duty; and 3) the attorney's negligence as the proximate cause of loss to the client. See Kates v. Robinson, 786 So.2d 61, 64 (Fla. 4th DCA 2001). For statute of limitations purposes, a cause of action for legal malpractice does not accrue until the underlying adverse judgment becomes final, including exhaustion of appellate rights. See Silvestrone v. Edell, 721 So.2d 1173, 1175 n. 2 (Fla. 1998). That is the first point at which there is a redressable harm. Id. at 1175. Until then, a malpractice claim is "hypothetical" and damages are "speculative." Id.; see also Hold v. Manzini, 736 So.2d 138, 142 (Fla. 3d DCA 1999) ("mere knowledge of possible malpractice is not dispositive of when a malpractice action accrues"). Security National points to this law and argues that because it owned the loan by the time the appeal was completed and the cause of action accrued, the law regarding the assignment of legal malpractice claims is irrelevant. Simply put, it claims that it was the owner of the loan at the critical point in time.
By contrast, Stern points to language from our decision in Kates, 786 So.2d at 64:
In stating a claim for legal malpractice, it is not sufficient merely to assert an attorney-client relationship. The plaintiff must also allege that a relationship existed between the parties with respect to the acts or omissions upon which the malpractice claim is based.
See also Maillard v. Dowdell, 528 So.2d 512 (Fla. 3d DCA 1988). These cases rejected attempts by former clients to retroactively expand the scope of the attorney's representation. While they are factually different, the basic point seems sound: the time of the alleged negligent act or omission is the critical point for testing the scope and existence of the attorney-client relationship.
Stem, 916 So.2d at 936-37. We agree with the Fourth District's conclusion. Security National did not gain standing to sue Stern for prior acts of legal malpractice by forming an attorney-client relationship with Stern during the appeal of the underlying foreclosure action. Therefore, we approve the Fourth District's conclusion on this issue. However, as explained below, we disagree with the Fourth District's extension of Kaplan into the context of general assignments of notes and mortgages.
STANDING BY ASSIGNMENT
We disapprove of the Fourth District's decision and conclude that Security National did not receive a valid assignment of the right to sue Stern for legal malpractice. First, in Kaplan, we did not adopt the minority, case-by-case approach regarding the assignment of legal malpractice claims. We continued to adhere to the majority view that legal malpractice claims are generally not assignable. Second, the Fourth District's reliance on Kaplan is further misplaced because the facts in Stem are significantly different from those in Kaplan. Third, the relevant policy considerations in cases such as this weigh against recognizing the assignment of a legal malpractice claim in a general assignment of a note and mortgage. We address each of these reasons in order.
First, the Fourth District misinterpreted our holding in Kaplan as an abandonment of the majority view which generally prohibits legal malpractice assignments in favor of the minority, case-by-case approach, which permits all legal malpractice assignments that do not violate relevant policy principles. As we explained in Kap-lan, "[a] majority of the states that have examined this issue, including Florida, have held that legal malpractice claims are generally not assignable.... A minority of jurisdictions allows assignment of legal malpractice claims[.]" 902 So.2d at 759 n. 3; see also KPMG, 765 So.2d at 38 ("[L]e-gal malpractice claims are not assignable because of the personal nature of legal services which involve a confidential, fiduciary relationship of the very highest character, with an undivided duty of loyalty owed to the client."); Forgione, 701 So.2d at 559 (quoting Washington v. Fireman's Fund Ins. Co., 459 So.2d 1148, 1149 (Fla. 4th DCA 1984) ("Florida law views legal malpractice as a personal tort which cannot be assigned because of 'the personal nature of legal services which involve highly confidential relationships.' ")). The Fourth District read Kaplan as follows:
The significance of Kaplan is not a narrow point pertaining to the attorney-client privilege, but rather the more broad view that the door is now open to assignment of legal malpractice actions in exceptional cases which do not fully implicate the core policy concerns underlying the general rule.
Stern, 916 So.2d at 938-39 (emphasis added). Contrary to the Fourth District's interpretation, the significance of Kaplan was indeed the narrow point pertaining to attorney-client privilege. Kaplan was not intended to proclaim that the door is now open to assignment of legal malpractice actions in exceptional cases.
Kaplan was the first and only case in which this Court permitted a limited exception to the general prohibition on legal malpractice assignments, and our holding was confined to the specific facts and circumstances of that case. Specifically, Kaplan involved the following facts:
Medical Research Industries, Inc. (MRI), a Florida corporation, developed and marketed homeopathic medical products. To raise money for capital improvements, MRI decided to issue a private placement of shares in the company. MRI's majority shareholder, William Tishman, consulted attorneys who prepared private placement memoranda. Through four private placements between 1996 and 1998, MRI raised over $50 million from about 2000 shareholders. Later, Tishman borrowed about $18 million in unsecured loans from MRI, leading to its eventual insolvency. MRI sued Tishman to recover the loan amount and obtained a judgment. Unable to satisfy the judgment, however, MRI executed an "Assignment for the Benefit of Creditors" to Donald Kaplan. Kaplan then sued for legal malpractice the attorneys who prepared the private placement memoranda. The trial court granted the attorneys' motions to dismiss, concluding that legal malpractice claims are personal and not assignable and are exempt from levy and sale under an execution of assignment.
902 So.2d at 757 (footnote omitted). The trial court dismissed the action, concluding that legal malpractice actions are not as signable. On appeal, the Third District reversed, holding that the legal services at issue in Kaplan were not personal in nature but rather involved the publication of corporate information to third parties. Subsequently, we approved the Third District's holding and receded from "broad dicta" in Forgione and KPMG, which purported to prohibit the assignment of all legal malpractice claims. See Kaplan, 902 So.2d at 757; see also KPMG, 765 So.2d at 38; Forgione, 701 So.2d at 559. In reaching our conclusion, we compared lawyers preparing private placement memoranda to independent auditors (as in KPMG), and reasoned that both types of professionals owe professional duties to intended third parties who rely on the statements contained in their published documents. We permitted the assignment of the legal malpractice claim because the information prepared in Kaplan was intended for release to third parties, and, therefore, the assignment did not violate attorney-client confidentiality. However, we stressed that "the vast majority of legal malpractice claims remain unassignable because in most cases the lawyer's duty is to the client." Kaplan, 902 So.2d at 757 (emphasis added).
Thus, in Kaplan we reaffirmed our adherence to the majority view that most legal malpractice claims are nonassignable. In so doing, we necessarily rejected the minority, case-by-case approach of evaluating whether particular assignments violate public policy concerns. We do so again in this case.
Second, we also disapprove of the Fourth District's reliance on Kaplan because the factual circumstances in Stem are not analogous to those in Kaplan. In Kaplan, "[t]he attorneys owed a duty to the public when advising MRI and preparing the private placement memoranda." Kaplan, 902 So.2d at 761. We explained that attorneys preparing private (or public) placement memoranda "act not just for the corporation's benefit, but for the benefit of all those who rely on the representations in their documents — in this case, potential shareholders." Id. at 758 (emphasis added). Unlike the attorneys in Kaplan, Stern did not perform legal work for EMC with the intention of directly benefiting Security National or any other third party. Indeed, at the time Stern filed the untimely 1998 foreclosure action and voluntarily dismissed the timely 1997 foreclosure action, the duty Stern owed was solely to its client at the time, EMC.
Kaplan also differs from Stem in that the assignment of the legal malpractice claim in Kaplan was express, whereas Security National asserts an implied assignment of the legal malpractice claim through the general assignment of the note and mortgage. We find that the right to bring an action against Stern for legal malpractice is not one of the rights Security National acquired when it purchased the note and mortgage by general assignment. First, we note:
As a general rule, the assignee of a nonnegotiable instrument takes it with all the rights of the assignor, and subject to all the equities and defenses of the debtor connected with or growing out of the obligation that the obligor had against the assignor at the time of the assignment.
State v. Family Bank of Hallandale, 667 So.2d 257, 259 (Fla. 1st DCA 1995) (citing Dickerson, Inc. v. Federal Deposit Ins. Corp., 244 So.2d 748, 749 (Fla. 1st DCA 1971); Guaranty Mortgage & Ins. Co. v. Harris, 182 So.2d 450, 453 (Fla. 1st DCA), rev'd on other grounds, 193 So.2d 1 (Fla. 1966)); see also Rose v. Teitler, 736 So.2d 122 (Fla. 4th DCA 1999). Whereas the general assignment of a note and mort gage conveys to the assignee the rights of the assignor under the note and mortgage (subject to the equities and defenses of the obligor), such an assignment does not implicitly assign the attorney-client relationship between the assignor and his attorney. As we have stressed before, " 'the real basis and substance of the malpractice suit' is a breach of the duties within the personal relationship between the attorney and client." Forgione, 701 So.2d at 559 (emphasis added) (quoting Christison v. Jones, 83 Ill.App.3d 334, 39 Ill.Dec. 560, 405 N.E.2d 8,10 (1980)).
In Stem, the legal malpractice claim arose from the personal attorney-client relationship established when EMC hired Stern to enforce its rights under the note and mortgage. This attorney-client relationship was not inherent in those instruments themselves. In other words, the right to sue for legal malpractice is not "connected with or growing out of' the relationship between the mortgagor and mortgagee; rather, the legal malpractice claim is connected to and grows out of the separately established relationship between the attorney and the client. See Family Bank of Hallandale, 667 So.2d at 259.
Third, we disapprove of the Fourth District's decision below because the relevant policy concerns weigh against permitting legal malpractice assignments^ As we noted in Kaplan, the following passage from California's Second District Court of Appeal well explains the policies against legal malpractice assignments:
It is the unique quality of legal services, the personal nature of the attorney's duty to the client and the confidentiality of the attorney-client relationship that invoke public policy considerations in our conclusion that malpractice claims should not be subject to assignment. The assignment of such claims could relegate the legal malpractice action to the market place and convert it to a commodity to be exploited and transferred to economic bidders who have never had a professional relationship with the attorney and to whom the attorney has never owed a legal duty.... The commercial aspect of assignability of . legal malpractice [actions] is rife with probabilities that could' only debase the legal profession. The almost certain end result of merchandizing such causes of action is the lucrative business of factoring malpractice claims which would encourage unjustified lawsuits against members of the legal profession, generate an increase in legal malpractice litigation, promote champerty and force attorneys to defend themselves against strangers. The endless complications and litigious intricacies arising out of such commercial activities would place an undue burden on not only the legal profession but the already overburdened judicial system, restrict the availability of competent legal services, embarrass the attorney-client relationship and imperil the sanctity of the highly confidential and fiduciary relationship existing between attorney and client.
Kaplan, 902 So.2d at 760 (quoting Goodley v. Wank & Wank, Inc., 62 Cal.App.3d 389, 133 CaLRptr. 83, 87 (1976)). In essence, the two major policy concerns justifying a general prohibition against the assignment of legal malpractice claims are (1) protecting attorney-client confidences and (2) preventing a market for legal malpractice claims. The Fourth District determined that these policy concerns were not present in Stem.
As to the first policy concern, the Fourth District reasoned that "[t]he case . does not involve personal services. It also seems unlikely that EMC or North American shared privileged information with Stern." See Stern, 916 So.2d at 938. Given the complete absence of any record support for this reasoning, it is rather speculative. We are unwilling to presume that Stern's relationships with EMC and North American did not involve personal services or that confidential information was not disclosed. Likewise, we also are unwilling to determine, as the Fourth District necessarily did, that EMC impliedly waived the attorney-client privilege when it conveyed the note and mortgage by general assignment. See id. at 938. Finding such an implied waiver in the general assignment of a note and mortgage would permit numerous unforeseen assignees downstream to have access to the original assignor's confidential information and would expose the assignor's attorney to virtually limitless liability to parties with whom the attorney never owed a professional duty. See Kaplan, 902 So.2d at 760 (citing Goodley, 133 CaLRptr. at 87).
We also disagree with the Fourth District's conclusion that permitting legal malpractice assignments in this context would not tend to create a marketplace for legal malpractice claims. To the contrary, this is precisely the type of transaction that our precedent warns against. See Kaplan, 902 So.2d at 760; KPMG, 765 So.2d at 38; Forgione, 701 So.2d at 559. Recognizing legal malpractice assignments under these circumstances would create an incentive for both holders of such impaired instruments and speculators to market these notes and mortgages with the right to sue the attorney in the failed foreclosure action included as a major factor in pricing the transaction. As stated earlier, this would expose attorneys to liability to parties who had no connection to the underlying foreclosure action, "never had a professional relationship with the attorney and to whom the attorney has never owed a legal duty." Kaplan, 902 So.2d at 760 (quoting Goodley, 133 Cal.Rptr. at 87). Permitting such a market to arise would create an "undue burden on not only the legal profession but the already overburdened judicial system, restrict the availability of competent legal services, embarrass the attorney-client relationship and imperil the sanctity of the highly confidential and fiduciary relationship existing between. attorney and client." Id. (quoting Goodley, 133 CaLRptr. at 87).
In short, the assignment of legal malpractice claims that arise in mortgage foreclosures violates the two policy concerns underlying the general prohibition against such assignment.
CONCLUSION
For the reasons expressed above, we quash the Fourth District's decision and hold that Security National does not have standing to bring an action against Stern for legal malpractice either through an attorney-client relationship or by general assignment.
It is so ordered.
WELLS, ANSTEAD, and CANTERO, JJ., concur.
LEWIS, C.J., concurs in result only with an opinion.
PARIENTE, J., dissents with an opinion, in which QUINCE, J., concurs.
QUINCE, J., dissents with an opinion, in which PARIENTE, J., concurs.