Opinion ID: 2600489
Heading Depth: 3
Heading Rank: 1

Heading: Pederson's Motion for Summary Judgment.

Text: In order to be liable to Barnes for damages she suffered as a result of Aiken's wrongdoing, Pederson must have breached a legal duty that he owed to Barnes. [3] When Pederson moved for summary judgment, he argued that he had no actual knowledge of Aiken's wrongdoing and that absent this knowledge he could not have breached any duty he might have owed to Barnes. The superior court concluded that Pederson, in his representation of Aiken as Barnes' guardian, owed a legal duty of care to not adversely affect Barnes' interest in the guardianship estate. Moreover, the superior court determined that a question of material fact existed about [w]hether Pederson knew or should have known that Aiken was mismanaging or wasting the guardianship estate. As a result, the superior court denied Pederson summary judgment. We review a superior court order denying summary judgment de novo. [4] [I]f a genuine issue of material fact exists or the moving party was not entitled to judgment as a matter of law we affirm the denial. [5] A material issue of fact exists where reasonable jurors could disagree on the resolution of a factual issue. Facts are to be viewed in the light most favorable to the nonmoving party. [6] In his appeal, Pederson argues that the superior court applied the wrong legal standard when determining the parameters of the legal duty he owed to Barnes. Pederson argues that the superior court, when considering Pederson's motion for summary judgment, should not have asked whether Pederson knew or should have known of Aiken's misconduct, but should instead have applied the Restatement [7] standard and asked just whether Pederson knew of the wrongdoing. Because it is undisputed that Pederson had no actual knowledge of Aiken's wrongdoing, Pederson contends that if the superior court had applied the correct legal standard, it could not have found a question of material fact to exist about whether Pederson had violated his duty to Barnes. As a result, the superior court would have had no choice but to grant summary judgment to Pederson. We agree with Pederson that section 51 of the Restatement (Third) of the Law Governing Lawyers articulates the correct standard for determining the circumstances in which a guardian's lawyer owes a duty to the guardian's ward. Section 51 explains that a lawyer owes a duty to use care . . . . . . (4) to a nonclient when and to the extent that: (a) the lawyer's client is a . . . guardian[;] (b) the lawyer knows that appropriate action by the lawyer is necessary with respect to a matter within the scope of the representation to prevent or rectify the breach of a fiduciary duty owed by the client to the nonclient, where (i) the breach is a crime or fraud or (ii) the lawyer has assisted or is assisting the breach; (c) the nonclient is not reasonably able to protect its rights; and (d) such a duty would not significantly impair the performance of the lawyer's obligations to the client.[ [8] ] Pederson's argument that he owed no duty to Barnes under Restatement (Third) of the Law Governing Lawyers section 51(4) derives from his belief that he had insufficient knowledge of Aiken's wrongdoing. Knowledge is a requirement of section 51(4)(b). However, since Pederson argues that an application of the Restatement standard compels an award of summary judgment in his favor, it behooves us to assess all of the elements of section 51(4), not just section 51(4)(b). If the facts of the case fail to satisfy any one of the elements of section 51(4), Pederson would have no legal duty to Barnes and could not be held liable for damages. Beginning our analysis with section 51(4)(a), neither side contests the fact that Pederson's client, Aiken, was Barnes's guardian. It is also undisputed not only that Aiken committed a crime when he stole his niece's money, as evidenced by his criminal conviction, but also that his crime was facilitated by the report that Pederson drafted and submitted to the superior court refuting allegations of Aiken's wrongdoing. As for section 51(4)(c), according to the terms of the Restatement, Barnes, a minor at the time that her uncle stole her money, was not reasonably able to protect her rights. [9] Finally, while neither side addresses the issue, section 51(4)(d) is also satisfied, since it does not appear that Pederson would have violated his obligations to Aiken had he taken the action he ultimately took  reporting Aiken's wrongdoing to the court  sooner. [10] Since all of the other requirements of Restatement section 51(4) are satisfied, in order to assess whether Pederson owed a duty to Barnes, all that remains to be determined is whether Pederson knew that he needed to take action to rectify Aiken's wrongdoing. The Restatement defines know as having actual knowledge or, alternatively, reason to know, which is further defined as having information from which a person of reasonable intelligence or of the superior intelligence of the actor would infer that the fact in question exists. [11] The Restatement takes care to distinguish reason to know from should know. [12] Should know denote[s] the fact that a person of reasonable prudence and intelligence or of the superior intelligence of the actor would ascertain the fact in question in the performance of his duty to another, or would govern his conduct upon the assumption that such fact exists. [13] Reason to know is a less onerous standard than should know, because reason to know only involves drawing inferences from known facts, whereas should know entails a duty to inquire and determine new facts. [14] Pederson reiterates several times in his briefs that he had no actual knowledge of Aiken's wrongdoing. At no point does he address whether he had reason to know of Aiken's conduct. Instead, Pederson analogizes his situation to that of the lawyer in Illustration 6 to Restatement (Third) of the Law Governing Lawyers section 51. In Illustration 6, a lawyer represents a client in the client's capacity as a trustee. The client tells the lawyer that he is going to transfer trust funds into a trust account, but what the client is actually planning to do is embezzle the funds by transferring them into his own account. According to the illustration: [e]ven though [L]awyer could have exercised diligence and thereby discovered [Client's description of his plan] to be false, Lawyer does not do so. Lawyer is not liable to the harmed Beneficiary. Lawyer did not owe Beneficiary a duty to use care because Lawyer did not know (although further investigation would have revealed) that appropriate action was necessary to prevent a breach of fiduciary duty by Client. The facts of this case differ from the facts in Illustration 6, however. The only information known by the lawyer in the illustration is that the client planned to transfer trust funds into a trust account. There is nothing at all suspicious about such a course of action, so the lawyer in the illustration has no information from which to draw an inference that the client is planning to embezzle funds. In this case, by contrast, several warning signs of Aiken's misconduct existed. Pederson knew about Barnes's therapist's allegations that Aiken was living beyond his means. Moreover, Pederson had obtained from Aiken three financial statements purportedly issued by Heid Investment Company. When opposing Pederson's motion for summary judgment, Barnes submitted a summary of Attorney Bruce Gagnon's testimony. In the summary, Gagnon opined that a number of characteristics of the Heid Investment Company reports gave Pederson reason to know that something was amiss with Aiken's handling of guardianship funds. According to Gagnon, not only do the reports purport to come from an obscure financial institution and suspiciously provide no details about how Barnes's assets were being invested, but they also indicate impossibly high rates of return on the investments. Moreover, Aiken, in his initial accounting to Pederson, failed to account for $40,274.18, which, when reported, almost doubled the amount of guardianship funds. Given this evidence about the suspicious appearance of the account statements, the incredibly high levels of return on the investments, and the fact that for a time Aiken apparently forgot about half of the guardianship funds, we hold that a genuine issue of material fact existed about whether Pederson had enough information from which to infer, and thus had reason to know, that Aiken was defrauding his niece. When assessing Pederson's argument at the summary judgment stage that he could not have breached a duty to Barnes, the superior court should have asked whether Pederson had reason to know, not whether he should have known, of Aiken's misconduct. Although the superior court applied an erroneous standard, the superior court nevertheless reached the correct result. We therefore uphold the denial of Pederson's motion for summary judgment. [15]