Opinion ID: 754066
Heading Depth: 2
Heading Rank: 1

Heading: Attorney-Client Privity and Negligent Misrepresentation

Text: 13 The district court concluded that a reasonable jury could not find an attorney-client relationship between Douglass and the Bank. The Bank argues that there was sufficient evidence to support such a finding, and alternatively, that the Bank can recover under a negligent misrepresentation theory irrespective of an attorney-client relationship. We find merit with the latter argument. 14 Texas law is clear that a legal malpractice claim requires proof of an attorney-client relationship between the plaintiff and the defendant attorney. In Banc One Capital Partners Corporation v. Kneipper, we explained: 15 In order to establish liability for professional negligence or legal malpractice, the [plaintiffs] must show the existence of a duty owed to them by [the attorney], a breach of that duty, and damages arising from the breach. Under Texas law, there is no attorney-client relationship absent a showing of privity of contract, and an attorney owes no professional duty to a third party or non-client. 3 16 This principle was confirmed in Barcelo v. Elliott, 4 where the Texas Supreme Court held that an attorney who negligently drafts a will or trust agreement owes no duty of care to the beneficiaries of the will or trust. The court noted that the potential tort liability to third parties would create a conflict during the estate planning process, dividing the attorney's loyalty between his or her client and the third-party beneficiaries. 5 It reasoned that the greater good is served by preserving a bright-line privity rule which denies a cause of action to all beneficiaries whom the attorney did not represent. This will ensure that attorneys may in all cases zealously represent their clients without the threat of suit from third parties compromising that representation. 6 It also expressed concern that [w]ithout this 'privity barrier,' the rationale goes, clients would lose control over the attorney-client relationship, and attorneys would be subject to almost unlimited liability. 7 17 In support of the existence of an attorney-client relationship between Douglass and the Bank, the Bank points out that the November 22 title opinion was addressed to the Bank, and states that it is rendered solely and exclusively for [the Bank's] benefit. Appellees Douglass, Lane, and Lane & Douglass (hereinafter the lawyers) point to evidence rebutting the existence of an attorney-client relationship. The Bank had its own counsel, Munson. Munson's letter to Douglass requesting the preparation of the title opinion states that [i]t is my understanding that you represent Trans Terra Corporation International, the borrower. Douglass never billed the Bank for his services, and consistent with lending practices, the borrower paid all the closing costs, including the legal fees of Douglass and Munson. Douglass testified that his clients were Trans Terra and Epps. Further, the title opinion states in its opening sentence that it was prepared at the request of Epps. 18 We agree with the district court that the lawyers were entitled to judgment as a matter of law on the legal malpractice claim, because no attorney-client relationship existed between Douglass and the Bank. The mere fact that the November 22 letter was addressed to the Bank, or states it was prepared for the benefit of the Bank, is insufficient to establish an attorney-client relationship. In Banc One, the opinion letter in issue was addressed to the plaintiff investors, and stated that it was furnished solely for their benefit, yet we held as a matter of law that no attorney-client relationship existed between the investors and the defendant law firm retained by the issuer of the securities purchased by the plaintiffs. 8 Further, the statement in the opinion letter that it was rendered solely and exclusively for the Bank's benefit must be read in context. The next sentence states that [i]t is not a representation of the title to the subject acreage to any other party. The disclaimer was plainly intended to protect Douglass from claims of reliance by parties other than the Bank, rather than to manifest an intention to create an attorney-client relationship. 19 An attorney-client relationship can arise by express agreement or by implication from the parties' actions. 9 However, courts will not readily find an implied relationship absent a sufficient showing of intent. 10 In Banc One, we held as a matter of law that neither an expressed nor implied attorney-client relationship existed based on a single letter addressed to plaintiffs and purporting to give an opinion solely for their benefit. 20 Likewise, a rational jury could not find an implied attorney-client relationship in this case based on the November 22 title opinion, where (1) Douglass did not bill the Bank for his services, (2) the Bank had its own counsel, (3) the Bank's counsel stated in his November 18 letter his understanding that Douglass represented Trans Terra, not the Bank, (4) Douglass testified without qualification that his clients were Epps and Trans Terra, not the Bank, and (5) the title opinion states that it was prepared at the request of Epps. 11 The attorney-client relationship is contractual in nature. 12 Whether the contract is express or implied, there must be a meeting of the minds that the attorney will render professional services to the client. 13 An implied contract merely refers to the manner of proof; the meeting of the minds is inferred from the conduct of the parties or the circumstances. 14 On these facts, a rational jury could not infer a meeting of the minds that Douglass would serve as attorney for the Bank. 21 The Bank argues that the testimony of its attorney expert supports a finding of an express or implied attorney-client relationship between Douglass and the Bank. He testified that when a lawyer addresses a title opinion to a lender, the lawyer is in effect representing the Bank. We agree with the lawyers that the unqualified statement by the expert that the lawyer always represents the addressee of a title opinion is a legal conclusion that will not support the verdict, and is further an incorrect statement of the law. The designation of an addressee in a title opinion letter, without more, does not establish a meeting of the minds that the author of the title opinion will serve as counsel to the addressee. 22 Even though an attorney-client relationship did not exist between Douglass and the Bank, we agree with the Bank that under the facts presented Texas law allows it a cause of action under a theory of negligent misrepresentation. At the outset we note that the Bank's complaint asserted separate causes of action for attorney malpractice and negligent misrepresentation. Likewise, the jury charge instructed the jury on both legal malpractice and negligent misrepresentation (the former requiring proof of an attorney-client relationship), and the jury found liability and damages under both theories. 23 The Texas Supreme Court, in Federal Land Bank Association of Tyler v. Sloane, 15 adopted the common law cause of action for negligent misrepresentation as set out in the RESTATEMENT (SECOND) OF TORTS § 552 (1977). Under § 552: 24 (1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. 25 (2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered 26 (a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and 27 (b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction. 28 Sloane expressly agreed with the Restatement's definition, and also set out its own elements of the negligent misrepresentation cause of action: 29 (1) the representation is made by a defendant in the course of his business, or in a transaction in which he has a pecuniary interest; (2) the defendant supplies false information for the guidance of others in their business; (3) the defendant did not exercise reasonable care or competence in obtaining or communicating the information; and (4) the plaintiff suffers pecuniary loss by justifiably relying on the representation. 16 30 Under either formulation of the elements of a negligent misrepresentation claim, the evidence supports a finding of liability against Douglass. 31 The lawyers argue that a negligent misrepresentation cause of action cannot be asserted against an attorney absent an attorney-client relationship between the plaintiff and the attorney. In F.E. Appling Interests v. McCamish, Martin, Brown & Loeffler, 17 the Texarkana Court of Appeals recently held that attorneys are subject to liability under the § 552 cause of action for negligent misrepresentation, whether or not an attorney-client relationship existed. In Appling, decided after the district court granted the motion for judgment, the plaintiff sued a savings association, VSA, under a lender liability theory. The parties worked toward a settlement, but the plaintiff was concerned that the settlement agreement would not be enforceable if VSA became insolvent and was taken over by the FSLIC. To complete the settlement, an attorney for the defendant law firm signed a settlement agreement, stating that VSA and its counsel represent that the agreement has been approved by the VSA board of directors and otherwise meets the requirements of 12 U.S.C. § 1823(e). Later, VSA did become insolvent, the FSLIC became the receiver, and a federal court held that the settlement agreement was unenforceable because it did not comply with § 1823(e). After analyzing Barcelo and other authorities, the court held that contractual privity between the plaintiff and the defendant attorney is not required if the elements of a § 552 negligent misrepresentation claim are otherwise met. 18 32 The Appling court reasoned that a negligent misrepresentation claim is not premised on the breach of a duty a professional owes his client or others in privity, but on an independent duty based on the attorney's manifest awareness of plaintiff's reliance on the representation and intention that the plaintiff so rely. 19 It noted that its holding did not conflict with Barcelo, since the plaintiffs in that case would have no negligent misrepresentation cause of action because the defendant never made a representation to them. 20 33 [A] decision by an intermediate appellate state court 'is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.'  21 Although the lawyers correctly point out that Appling is in conflict with earlier intermediate state appellate court decisions, 22 we are persuaded that the Texas Supreme Court would agree with Appling. It is the latest authority from the Texas courts, and in our view is directly on point. The Texas Supreme Court denied review in Appling. The Appling court had the benefit of the Texas Supreme Court's decisions in Sloane and Barcelo, the most recent Texas Supreme Court decisions relevant to the issue presented, and discussed both cases. We further note that writing contrary to Appling in earlier Texas cases was not essential to the holdings in those cases. 23 34 We also conclude that the Texas Supreme Court's reasons for requiring attorney-client privity in legal malpractice cases do not compel a privity requirement in a negligent misrepresentation case such as this one. As discussed above, Barcelo reasoned that the privity requirement is justified because: (1) potential tort liability to third parties would create a conflict during the estate planning process, dividing the attorney's loyalty between his or her client and the third-party beneficiaries; 24 (2) the privity requirement will ensure that attorneys may in all cases zealously represent their clients without the threat of suit from third parties compromising that representation; 25 and (3) [w]ithout this 'privity barrier' ... clients would lose control over the attorney-client relationship, and attorneys would be subject to almost unlimited liability. 26 35 These concerns are not present where the negligent misrepresentation claim is premised on the facts presented in the pending case. There is no conflict of interest where, as here, both the client borrower and the third party lender jointly ask the attorney to prepare an opinion letter. A conflict could only arise if the client secretly hopes that the title opinion will contain false information, and we see no reason to protect the attorney from his own negligence with a privity barrier in such circumstances. We see no burden on zealous representation when both the lender and client request a discrete service from the attorney, namely the preparation of a title opinion. Again, barring sinister motives of the client, both client and lender seek only a accurate title opinion. Further, where as here the client directs the attorney to prepare a title opinion for a single lender, and the attorney prepares the opinion disclaiming liability to any party other than the lender, there is little risk that the client will lose control over the attorney-client relationship or the attorney will face unlimited liability.