Opinion ID: 2570772
Heading Depth: 4
Heading Rank: 3

Heading: Negligence versus Third Party Beneficiary Theory

Text: Although many jurisdictions allow a non-client to bring a legal malpractice action in the context of estate planning, the jurisdictions are split as to which legal theory should apply to allow the claim. We are aware of only one jurisdiction that has specifically allowed a claim for relief sounding in negligence, but, at the same time, has denied a claim based on a third party beneficiary theory. See Donahue, 900 S.W.2d at 629 (holding that a claim for relief is limited to negligence because the breach of duty is based upon negligent performance of duty, not breach of contract). In rejecting the third party beneficiary theory, the Missouri Supreme Court stated that, [w]hile one element of one of their malpractice claims requires a showing that [the client] intended to benefit plaintiffs, a careful reading of the pleadings discloses that liability hinges not on contract but on an attorney's alleged negligence toward a client. The duty allegedly breached was not the violation of the contract . . ., but that [the attorney] was negligent in performing professional obligations to [the client]. Plaintiffs' third party beneficiary claim is merely one of attorney malpractice, clothed in a contract theory. Id. at 629. Compare Heyer v. Flaig, 70 Cal.2d 223, 74 Cal.Rptr. 225, 449 P.2d 161 (1969) (superceded by statute, see Cal. Civ. Proc. Code § 340.6 (West 1982), as recognized by, Laird v. Blacker, 2 Cal.4th 606, 7 Cal. Rptr.2d 550, 828 P.2d 691, 693 (1992)) (noting that, even though California recognizes both negligence and third party beneficiary claims, recovery based upon a third party beneficiary claim by a non-client is conceptually superfluous [to a tort claim] since the crux of the action must lie in tort in any case; there can be no recovery without negligence); Gerald P. Johnston, Legal Malpractice in Estate PlanningPerilous Times Ahead for the Practitioner, 67 Iowa L.Rev. 629, 629-30 n.1 (1982) (noting that, although a legal malpractice action may be based on two separate legal theories, the precise [legal] theory on which a legal malpractice claim is posited is largely irrelevant, for in either instance a lawyer is required to exercise due care in representing clients consistent with a lawyer's training and profession). On the other hand, we are aware of only two jurisdictions that have specifically limited a non-client's cause of action to a third party beneficiary claim against a testator's or settlor's attorney. See Guy, 459 A.2d at 746-47; Noble v. Bruce, 349 Md. 730, 709 A.2d 1264, 1275-76 (1998). [8] In Guy, a plurality opinion, the Pennsylvania Supreme Court deemed it appropriate to grant standing under Restatement (Second) of Contracts § 302 (1981) to a narrow class of third party beneficiaries where the intent to benefit was clear and the promisee ( i.e., the testator) was unable to enforce the contract. 459 A.2d at 751. However, the court in Guy specifically rejected the idea of a malpractice action by a third party under tort principles, noting that important policies underlying the privity requirement and the dangers of adopting negligence concepts of dutyanalyzed in terms of scope of the risk or foreseeabilityprecluded a negligence claim for professional malpractice by a non-client. Id. at 750; see also Noble v. Bruce, 709 A.2d at 1271 (criticizing the balancing factors approach as being too broad). Citing the line of California cases following Lucas, the Pennsylvania Supreme Court emphasized the unworkability of a tort based action by non-clients which led to ad hoc determinations and inconsistent results under a complicated, case-by-case six part balancing test. Guy, 459 A.2d at 749; Noble, 709 A.2d at 1271 (agreeing with the reasoning in Guy and, therefore, declining to apply the balancing factors approach in that case). Moreover, the Pennsylvania Supreme Court believed that the inability to distinguish between a negligence claim and third party beneficiary is based on a common confusion of negligence doctrines relating to standard of care with those relating to scope of the risk, i.e., the class of persons to whom a duty is owed, analyzed in negligence in terms of foreseeability. Thus, although a plaintiff on a third party beneficiary theory in contract may in some cases have to show a deviation from the standard of care, as in negligence, to establish breach, the class of persons to whom the defendant may be liable is restricted by principles of contract law, not negligence principles relating to foreseeability or scope of risk. Guy, 459 A.2d at 752 (limiting claim to third party beneficiary theory). Still, several jurisdictions recognizing a malpractice action by a non-client allow the action to proceed on a negligence theory, in addition to a third party beneficiary theory. See, e.g., Lucas, 15 Cal.Rptr. 821, 364 P.2d at 688 n.2, 689; Hale v. Groce, 304 Or. 281, 744 P.2d 1289, 1290 (1987) (holding that an intended will beneficiary may enforce an attorney's contractual duty to his client to include the beneficiary in the client's will and that the same contract also creates a legal duty of care to the beneficiary, the negligent performance of which may give rise to a negligence claim); Schreiner v. Scoville, 410 N.W.2d 679, 682 (Iowa 1987); Ogle v. Fuiten, 102 Ill.2d 356, 80 Ill.Dec. 772, 466 N.E.2d 224, 227 (1984); Simpson v. Calivas, 139 N.H. 1, 650 A.2d 318, 322-23 (1994); Mieras v. DeBona, 452 Mich. 278, 550 N.W.2d 202 (1996) (plurality opinion). In our view, the Appellants' negligence and third party beneficiary claims are not irreconcilable even though each is grounded in a distinct theory of recovery. As the Missouri Supreme Court observed in Donahue: The first factor of the balancing test addresses the extent to which the transaction was intended to benefit the plaintiff and bears a remarkable resemblance to the third party beneficiary theory. The question of whether the client had a specific intent to benefit the plaintiff plays an important role in determining if a legal duty exists under the balancing of factors test. 900 S.W.2d at 628. Maryland, which only allows a third party beneficiary claim, recognizes that the scope of duty concept in negligence actions may be analogized to the third party beneficiary concept in the context of attorney malpractice cases. Thus, regardless of whether a tort theory or a contract theory is pled, a plaintiff in an attorney malpractice action must first allege and prove the existence of a duty between the plaintiff and the defendant. Noble, 709 A.2d at 1272 (citation omitted). Although this court has never specifically determined that legal malpractice is actionable under both tort and contract theories, we have generally characterized legal malpractice actions brought by clients as hybrids of tort and contract[.] Higa v. Mirikitani, 55 Haw. 167, 173, 517 P.2d 1, 5 (1973) (holding that the statute of limitations applicable to contract claims, HRS § 657-1(1), governs legal malpractice claims). The Pennsylvania Supreme Court's distinction between the two legal theories appears to be heavily based upon its policy of limiting the potential liability of an attorney to a non-client by restricting such actions to a third party beneficiary theory that limits damages to the expectancy of the non-client beneficiary. Guy, 459 A.2d at 756. See generally Martin D. Begleiter, Attorney Malpractice in Estate PlanningYou've Got to Know When to Hold Up, Know When to Fold Up, 38 U. Kan. L. Rev. 193, 255 (1989) (discussing the tension between expanding the scope of malpractice liability to a non-client under a broader rule of negligence law and limiting that liability to specific situations under a third party beneficiary theory). Although we are cognizant of the need to balance the liability placed upon the legal profession against the need to provide a remedy to an intended beneficiary, we believe that the remedies available in tort that are generally over and above those available in contract, e.g., punitive damages and emotional distress, do not place an unreasonable burden upon the legal profession. Established tort principles appropriately limit the recovery available in a legal malpractice action brought by non-clients under a negligence theory. For example, punitive damages are generally unavailable absent wanton, malicious, or fraudulent conduct. See, e.g., Masaki v. General Motors Corp., 71 Haw. 1, 11, 780 P.2d 566, 572 (1989) ([Punitive] damages may be awarded in cases where the defendant `has acted wantonly or oppressively or with such malice as implies a spirit of mischief or criminal indifference to civil obligations'; or where there has been `some wilful misconduct or that entire want of care which would raise the presumption of a conscious indifference to consequences.') (citation omitted); Goo v. Continental Cas. Co., 52 Haw. 235, 239, 473 P.2d 563, 566 (1970) (concluding that, at trial, appellant had failed to adduce sufficient evidence that appellees acted maliciously, oppressively, wantonly, or fraudulently for the question of punitive damages to be submitted to the jury). In a case of legal malpractice in the estate planning context, it is difficult to conceive of circumstances where an attorney would be sued based on malicious or wanton drafting of a testamentary document. Nevertheless, if the requisite facts were properly established, an instruction on punitive damages might be warranted. Likewise, damages for negligent infliction of emotional distress are generally unavailable for purely economic losses. See HRS § 663-8.9 (1993). [9] Consequently, the damages for a legal malpractice claim arising in the estate planning context based upon negligence will rarely, if ever, include damages other than consequential damages. Therefore, we hold that, where the relationship between an attorney and a non-client is such that we would recognize a duty of care, the non-client may proceed under either negligence or contract theories of recovery. [10]