Opinion ID: 1822804
Heading Depth: 1
Heading Rank: 3

Heading: standing by assignment

Text: 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 Stern 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 Kaplan, [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]egal 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 assignable. 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 Stern 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 Stern 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 mortgage 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 Stern, 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 Cal.Rptr. 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 Stern. 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 Cal.Rptr. 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 Cal.Rptr. 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.