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

Heading: Standing to Assert Legal Malpractice in the Instant Case

Text: We now address whether, in the present case, the Appellants have alleged facts sufficient to show that, if proven, Ing owed a duty of care to them. The Appellants contend that, as the intended beneficiaries of the Hughes Trust, Ing owes them a duty of care. Ing, however, contends that, because the Hughes Trust is a valid trust, a cause of action should not be recognized under the facts of this case as a matter of policy. We observe that [t]he general rule with respect to the liability of an attorney for failure to properly perform his duties to his client is that the attorney, by accepting to give legal advice or to render other legal services, impliedly agrees to use such skill, prudence, and diligence as lawyers of ordinary skill and capacity commonly possess and exercise in the performance of the tasks which they undertake. Lucas, 15 Cal.Rptr. 821, 364 P.2d at 689 (holding that an attorney who drafted a will that violated the rule against perpetuities was not liable to non-client beneficiaries under either a negligence or third party beneficiary theory). An attorney cannot be held liable for every mistake made in his or her practice, especially for an error as to a question of law on which reasonable doubt may be entertained by well-informed lawyers. See id; see also Bucquet v. Livingston, 57 Cal.App.3d 914, 921, 129 Cal.Rptr. 514, 518 (Cal.Ct.App.1976) (noting that [l]iability to testamentary beneficiaries not in privity is not . . . automatic). Such a blanket duty would possibly amount to a requirement to draft litigation proof legal documents. This unlimited liability . . . would result in a speculative and almost intolerable burden on the legal profession . . . . Ventura County Humane Society for Prevention of Cruelty to Children and Animals, Inc. v. Holloway, 40 Cal. App. 3d 897, 905, 115 Cal.Rptr. 464, 469 (1974). Regarding the imposition of a duty of care, this court has noted generally that: In considering whether to impose a duty of reasonable care on a defendant, we recognize that duty is not sacrosanct in itself, but only an expression of the sum total of those considerations of policy which lead the law to say that the particular plaintiff is entitled to protection. Waugh v. University of Hawaii, 63 Haw. 117, 135, 621 P.2d 957, 970 (1980); Kelley v. Kokua Sales & Supply, Ltd., 56 Haw. 204, 207, 532 P.2d 673, 675 (1975). Legal duties are not discoverable facts of nature, but merely conclusory expressions that, in cases of a particular type, liability should be imposed for damage done. Id. (quoting Tarasoff [v. Regents of the Univ. of California], . . . 17 Cal.3d 425, 131 Cal.Rptr. 14, 551 P.2d [334,] 342 [(Cal.1976)]). In determining whether or not a duty is owed, we must weigh the considerations of policy which favor the appellants' recovery against those which favor limiting the appellees' liability. Waugh, 63 Haw. at 135, 621 P.2d at 970; Kelley, 56 Haw. at 207, 532 P.2d at 675. The question of whether one owes a duty to another must be decided on a case-by-case basis. Waugh, 63 Haw. at 135, 621 P.2d at 970. However, we are reluctant to impose a new duty upon members of our society without any logical, sound, and compelling reasons taking into consideration the social and human relationships of our society. Birmingham v. Fodor's Travel Publications, Inc., 73 Haw. 359, 370-71, 833 P.2d 70, 76 (1992) (holding that a publisher of a work of general circulation, that neither authors nor expressly guarantees the contents of its publication, has no duty to warn the reading public of the accuracy of the contents of its publication); Johnston v. KFC Nat'l Management Co., 71 Haw. 229, 232-33, 788 P.2d 159, 161 (1990) (declining to impose a duty upon non-commercial suppliers of alcohol, i.e., social hosts, to protect third parties from risk of injuries that might be caused by adults who consume the social hosts' alcohol). Lee v. Corregedore, 83 Hawai`i 154, 166, 925 P.2d 324, 336 (1996). In addition to the foregoing general principles, this court regarded several factors espoused in Nally v. Grace Community Church, 47 Cal.3d 278, 253 Cal.Rptr. 97, 763 P.2d 948 (1988), cert. denied, 490 U.S. 1007, 109 S.Ct. 1644, 104 L.Ed.2d 159 (1989), as relevant in determining whether to impose a duty in Lee: whether a special relationship exists . . ., the foreseeability of harm to the injured party, the degree of certainty that the injured party suffered injury, the closeness of the connection between the defendants' conduct and the injury suffered, the moral blame attached to the defendants, the policy of preventing harm, the extent of the burden to the defendants and consequences to the community of imposing a duty to exercise care with resulting liability for breach, and the availability, cost, and prevalence of insurance for the risk involved. Lee, 83 Hawai`i at 164, 925 P.2d at 334, 336. Analogously, whether to impose a duty upon an attorney to a non-client for malpractice requires the balancing of several factors in light of the policies favoring recovery versus those limiting liability. As previously noted, the Lucas court promulgated a six-factor test, analogous to that used in Lee, to address this particular issue. Lucas, 15 Cal.Rptr. 821, 364 P.2d at 687-88 (citation omitted). Inasmuch as the Lucas test is analogous to the test relied upon in Lee, we adopt the Lucas factors as relevant to the determination whether to impose a duty upon attorneys to non-client beneficiaries in the estate planning context. Applying the foregoing Lucas factors in the present case, the Appellants argue that: (1) because one of the primary purposes in drafting the Hughes Trust using an A-B trust plan was to distribute or transfer the Hugheses' assets to the Appellants with the least possible tax consequences, the Hughes Trust was intended to affect the Appellants; (2) in drafting the Hughes Trust, it was foreseeable that the Appellants, the intended beneficiaries, would suffer damage in the form of a diminished inheritance if the Hugheses' property was not properly disposed of using a bypass trust in accordance with the Hugheses' alleged intent; (3) but for Ing's alleged failure to include a provision in the trust plan to fund the bypass trust, which caused the Hugheses' entire estate to be subject to taxation, they would have received the intended benefits, i.e., a greater inheritance; and (4) the policy of preventing future harm caused by negligent drafting of testamentary documents in estate planning would be impaired if the Appellants were unable to recover for the loss resulting from Ing's alleged failure to fulfill the Hugheses' intent, notwithstanding the fact that the Hughes Trust was not declared invalid. Ing, however, contends that the imposition of a legal duty will create unlimited liability to an unlimited class of individuals and will unduly burden the legal profession. In our view, although the imposition of a duty may possibly subject an attorney to greater liability, the potential liability is properly limited by the narrow application of the Lucas balancing test under a claim of negligence and third party beneficiary principles under a contract claim. See Donahue, 900 S.W.2d at 628. For example, a benefit that is merely incidentally conferred upon the beneficiary will not meet the first factor of the Lucas balancing test or the third party beneficiary principle that the contract be entered into with the intent to benefit the non-client. See id. (noting that the predominant inquiry has generally involved the criterion of whether the principal purpose of the attorney's retention to provide legal services was for the specific benefit of the plaintiff) (citation omitted). The class of individuals who may bring a malpractice action is limited to a client's intended beneficiaries, provided no other remedy exists to prevent future harm. Although previously noted, we emphasize that our holding today does not create a blanket duty of care to all non-client beneficiaries in every case. Ing further contends that the circuit court did not abuse its discretion in dismissing Appellants' amended complaint because the Hughes Trust had never been challenged. By allowing the present lawsuit to proceed, Ing contends that a conflict of interest would arise if he were held liable to the Appellants because the Appellants' interests may be adverse to that of his clients', i.e., the Hugheses' interests. Ing further contends that allowing a cause of action under these circumstances requires that he disclose client confidences in contravention of Hawaii Rules of Evidence (HRE) Rule 503(d)(4) and Hawaii Rules of Professional Conduct Rule 1.6(c)(3). In sum, Ing essentially contends that, because there is no express provision in the Hughes Trust declaring their intent to minimize taxes, the Appellants should not, as a matter of policy, be allowed to introduce extrinsic evidence to contradict the Hugheses' intent as demonstrated on the face of the trust. Several jurisdictions that permit a legal malpractice action by a non-client subscribe to a rule that precludes the use of extrinsic evidence. Thus, where the testamentary instrument is valid on its face, these jurisdictions deny a non-client's malpractice cause of action. See, e.g., Espinosa, 612 So. 2d at 1380; Schreiner, 410 N.W.2d at 683; Noble, 709 A.2d at 1276; Mieras v. DeBona, 452 Mich. 278, 550 N.W.2d 202, 209 (1996). However, several other jurisdictions do not follow such a rule. See, e.g., Hale v. Groce, 744 P.2d at 1289 (holding that the complaint sufficiently alleged a negligence claim where the will and related trust instrument did not include the plaintiff's gift); Teasdale v. Allen, 520 A.2d 295, 296 (D.C.1987); Simpson v. Calivas, 139 N.H. 1, 650 A.2d 318, 322 (1994). In Ogle v. Fuiten, 102 Ill.2d 356, 80 Ill.Dec. 772, 466 N.E.2d 224, 227 (1984), the Illinois Supreme Court addressed the use of extrinsic evidence in a legal malpractice action brought by a non-client. There, the testators' nephew and niece brought a malpractice suit against an attorney who negligently drafted the testators' wills by failing to include the plaintiffs as beneficiaries. The court rejected the defendant's argument that the plaintiffs should be required to show, from the express terms of the will, that they were intended beneficiaries of the attorney-testator relationship to maintain a cause of action. Id. The court noted that the only remedy for intended beneficiaries who are negligently omitted from a testamentary document due to the fault of the drafting attorney is through malpractice. Id. Thus, the court distinguished a malpractice action by the non-clients from a collateral attack upon the will, noting that if plaintiffs here are successful in their action, the orderly disposition of the testators' property is not disrupted, and the provisions of the wills, and the probate administration, remain unaffected. Id.; see also Hamilton v. Needham, 519 A.2d 172, 175 n.7 (D.C. 1986) (declining to adopt the holding that liability to intended beneficiaries for legal malpractice can lie only if `the testamentary intent as expressed in the will, is frustrated[,]' because, where the will is silent as to the disposition of the testator's residuary estate, a finding that [the testator] intended that it pass to [the beneficiary plaintiff] is in no way contradictory to, nor does it frustrate, the language of the will itself). We are persuaded by the reasoning of Ogle and, therefore, adopt it in the present case. Here, the Appellants' cause of action would not prevent the enforcement of the trust document itself or vary its terms in contravention of the statute of wills. See In re Christian's Estate, 65 Haw. 394, 401, 652 P.2d 1137, 1142 (1982) (noting that courts will not rewrite the will of the testator nor vary its provisions) (citing Hawaiian Trust Company, Ltd. v. Wilder, 46 Haw. 436, 444, 382 P.2d 61, 65 (1963)). Thus, by seeking to enforce the terms of the agreement between Ing and the Hugheses that were not fulfilled by the trust document in accordance with the Hugheses' intent, the Appellants could, if successful, recover from Ing, not the trust estate, the benefits they would have received under the Hughes Trust but for the allegedly negligent drafting by Ing. To limit a malpractice cause of action by a non-client to the face of the testamentary document that does not reflect the testator's true intent would render the recognition of a cause of action meaningless. See Hamilton, 519 A.2d at 175. In other words, [t]o have any real meaning, our holding . . . that [the Appellants] could bring this legal malpractice action must sanction as a corollary [their] use of evidence outside the will to support [their] claim . . . . Without the use of such extrinsic evidence, [their] case would be rendered unprovable. Id. We emphasize, however, that our allowance of the use of extrinsic evidence in this legal malpractice action is wholly separate from cases in which courts interpret testamentary documents. In the latter instance, the cardinal rule to which all other rules must bend is that the intention of the testator controls and must be given effect unless it be contrary to some rule of law or against public policy. . . . Such intention, however, is to be ascertained from the language of the will itself as far as the language employed permits and resort should not be had to rules of construction unless and until from the ambiguity of the language used the intention of the testator cannot be fairly and reasonably ascertained. In re Campbell Estate, 33 Haw. 799, 801-02 (1936) (citations omitted). Moreover, imposition of a duty will not create the potential conflict of interest argued by Ing. As stated by the concurrence in Mieras: First, because beneficiaries of a will have no rights under the will before the testator's death, a disgruntled beneficiary's cause of action does not ripen until the death of the testator. [M]erely drafting and executing a will creates no vested right in the legatee until the death of the testatrix. Stowe v. Smith, 184 Conn. 194, 198, 441 A.2d 81, [83] (1981). Second, the only obligation owed by the attorney to named beneficiaries is to exercise the requisite standard of care in fulfilling the intent of the testator as expressed in the will. An attorney would never face conflicting obligations to the testator and the beneficiaries by drafting a document that properly fulfills the testator's intent as expressed in that document. Further, the testator is always free to change the beneficiary of the will, and the displaced beneficiary will have no cause of action. As noted in the concurring opinion in Guy, supra : The contract upon which the obligation arises required the scrivener to fulfill the intention of the testator expressed to him at the time of the drafting. The fact that the testator could subsequently change the proposed testamentary disposition is of no moment. The scrivener's obligation was to provide that which he undertook to do and the failure to do so constituted the breach which justified the recovery. [459 A.2d at 753 n.2.] The duty owed to named beneficiaries is narrowly circumscribed and only requires the attorney to draft a will that properly effectuates the distribution scheme set forth by the testator in the will. 550 N.W.2d at 212 (Boyd, J., concurring, joined by Brickley, C.J., and Cavanagh, Riley, Mallett, and Weaver, JJ.) (some brackets original, some deleted, and some added). Thus, there is no conflict of interest under circumstances, such as the present case, where a beneficiary seeks to enforce an attorney's duty to fulfill his or her client's intent. Ing contends that allowing the use of extrinsic evidence in the present case adversely affects the attorney-client privilege by forcing attorneys into a position where they would have to reveal a client's confidences in actions such as the instant case. We acknowledge that an underlying principle in the attorney-client relationship is that the attorney must maintain confidentiality of information relating to the representation, thereby encouraging full and frank communication with the attorney. See Hawai`i Rules of Professional Conduct Rule 1.6, cmt. 4 (1995). However, the attorney-client privilege is qualified and does not extend to a communication regarding whether an attorney has breached his or her duty to the client. See Hawai`i Rules of Evidence (HRE) Rule 503(d)(4). [11] Balancing the policy of full and frank communication fostered by the attorney-client privilege against the policy of preventing future harm by granting a cause of action in limited circumstances, we believe that, under the circumstances of the present case, the effect upon the privilege is minimal. We therefore believe that, on balance, the fact that an intended beneficiary is otherwise left without a remedy far outweighs such a minimal, adverse effect upon the attorney-client privilege. But see Noble v. Bruce, 709 A.2d at 1277-78. Compare Sapp v. Wong, 62 Haw. 34, 38, 609 P.2d 137, 140 (1980) (noting that, [b]ecause the privilege works to suppress otherwise relevant evidence, the limitations which restrict the scope of its operation . . . must be assiduously heeded). Therefore, we hold that the Appellants have alleged facts that, if proven, would show that Ing owed them a duty of care to draft the Hughes Trust in accordance with the Hugheses' alleged intent to transfer their assets to the Appellants with the least taxation possible using an A-B trust plan. Alternatively, the Appellants' complaint asserts a third party beneficiary theory against Ing. When reviewing a circuit court's dismissal under HRCP Rule 12(b)(6), this court must view the plaintiff's complaint in a light most favorable to him or her to determine whether the allegations could warrant relief under any alternative theory. Touchette v. Ganal, 82 Hawai`i 293, 298, 922 P.2d 347, 352 (1996). Here, the complaint alleged that a primary purpose of the contract between Ing and the Hugheses was to transfer the Hugheses' assets to the Appellants, as the intended beneficiaries, with the least taxation possible using an A-B trust plan. Additionally, the complaint alleged that Ing breached the contract by failing to fulfill the Hugheses' intent when he neglected to draft a provision that funded the bypass trust. Under the circumstances, recognition of a cause of action under a third party beneficiary theory may be appropriate to fulfill the intention of the contract. See Guy, 459 A.2d at 751. Thus, we hold that the Appellants have alleged facts in their complaint that, if proven, would show that they were the intended third party beneficiaries, entitling them to recovery. Accordingly, based upon the foregoing, we hold that, because the Appellants' complaint sufficiently alleges a negligence claim in Count I and a third party beneficiary claim in Count II, the circuit court erred when it dismissed the complaint against Ing.