NJ: Lawyers' Duty to Third Parties

Posted on January 18, 2011 by Ben Wasserman

Rathblott v. Levin, 697 F. Supp. 817 (D.N.J. 1988)

NJ: Underlying dispute over a will

Student Contributor: Laura Binski

Facts: Albert Rathblott (the client) died from cancer on October 19, 1979. Mr. Rathblott was survived by his two adult children and his third wife, Elizabeth. Rathblott created his first will in 1963, and in 1973 added a bequest of $10,000 to Elizabeth. In the last week of his life, Rathblott made several changes to his will with the help of his lawyer, Jay Levin. Mr. Rathblott’s final will (executed two days before his death) was challenged by his children in New Jersey state court on the grounds that Rathblott lacked testamentary capacity and free will in the last days of his life when the will was executed. His wife Elizabeth, the beneficiary of the will, now sues Mr. Levin for negligence. Elizabeth asserts that although she was successfully granted the $10,000 bequeath, she has lost significant amounts of money defending the contest of the will. In response, the lawyer moved for the case to be dismissed, saying that he owed no duty to the Elizabeth because there was no privity between them.

Issue: Should a lawyer be able to use a lack of privity defense when a beneficiary who did not lose her rights under the will but did lose money defending the will sues him for negligence in the drafting of the will?

Ruling: No. Under New Jersey law, a lawyer may be held liable to the beneficiary of a will (even when there is a lack of privity between the two) for negligent drafting when it caused the beneficiary to spend considerable money defending the contest of the will. The Court recognized that in this case, there was a possibility of privity through reliance, which would need to be determined in a trial. As a result, the lawyer’s motion for summary judgment was denied.

Lesson: There is no real difference between a person who loses her rights to half of her estate and a person who loses half her estate defending her rights. A lawyer must take all reasonable measures to avoid the risk of causing economic harm to any person he has a reason to know may suffer as a result of his actions.  

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SC: Nonexistent Will Equals Nonexistent Duty

Posted on January 17, 2011 by Ben Wasserman

Rydde v. Morris, 381 S.C. 643 (S.C. 2009)

SC: Underlying estate matter

Student Contributor: Karen Dindayal

Facts:  Johanna W. Knight was an elderly person, who retained Morris to handle her estate planning matters. In the estate planning questionnaire provided by Morris, Knight named Rydde and Konij as her prospective will beneficiaries on September 22, 2005. Before her actual will was even prepared, Knight became incapacitated on September 28, 2005 and died on October 3, 2005 causing her estate to pass through intestacy. The prospective beneficiaries Rydde and Konij filed suit against Morris for legal malpractice on the theory that Morriss had a duty to these two individuals to draft Knights’ will between September 22nd and September 27th, before Knight become unresponsive. Morris then filed a motion to dismiss for failure to state a cause of action, which was granted, and Rydde and Konij appealed.

Issue:  Did the circuit court correctly grant Morris’ motion to dismiss Rydde’s and Konif’s suit for Morris’ alleged negligent failure to timely draft a will?

Ruling: Yes. An attorney owes no duty to a prospective beneficiary of a nonexistent will.

Lesson:  There must be an attorney-client relationship before a party may make a claim for legal malpractice and there exists no privity between an attorney and the prospective beneficiaries of a will.

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NJ: Limitations on Duties to Third-Parties

Posted on March 3, 2010 by Krishna Shah

Estate of Albanese v. Lolio, 393 N.J. Super. 355 (App. Div. 2007).

NJ Underlying Probate Matter

Student Contributor: Natalie Resto

Facts: The decedent was survived by three daughters, all beneficiaries under the decedent’s will. One of the beneficiaries, the executrix, retained the defendant attorney for the probate of the decedent’s estate. The executrix, allegedly upon the advice of the attorney and a financial planner, withdrew funds from the IRA and made equal distributions to the beneficiaries, resulting in a personal income tax burden on the beneficiaries of approximately $298,000 each. All the beneficiaries, including the testatrix, sued the attorney for malpractice claiming that the attorney never outlined options by which the testatrix could pay the estate taxes. The attorney, however, claimed that he advised the testatrix of other options for paying the taxes aside from using funds from the IRA. These conversation, however, were never documented in writing.

Issue: Does an attorney owe a duty to the individual beneficiaries to inform them of the personal tax implications of his advice?

Ruling: The court held that under the retainer agreement, the attorney represented the estate and its executrix, and was obligated to advise her with regard to post-mortem planning, including calculating tax needs. This requirement, however, did not apply to the remainder of the beneficiaries who likely had different, and possibly adverse, interests. As a result, the Court declined to extend the duty an attorney owes to third parties who are beneficiaries of an estate the lawyer represents, or to hold that the attorney has an obligation to consider and advise third-party beneficiaries of the tax consequences of a bequest or legacy.

Lesson: Attorneys have an obligation to define the scope of their representation clearly and unambiguously. Restatement of the Law Governing Lawyers §14 comment f states that “[i]n trusts and estates practice a lawyer may have to clarify with those involved whether a trust, a trustee, its beneficiaries or groupings of some or all of them are clients and similarly whether the client is an executor, an estate, or its beneficiaries.” The attorney will bear liability for the beneficiaries that fall under the scope of his representation as it is set forth in his retainer agreement.

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