NY: No Privity, No Liability

Posted on June 2, 2010 by Krishna Shah

Sayeh v. 66 Madison Ave. Apt. Corp., 2010 NY Slip Op 03844 (1st Dept. May 6, 2010)

Underlying Commercial Transaction

Facts: Plaintiff, an owner of seven apartments in a coop, sought to purchase an eighth unit. Plaintiff’s application to purchase the eight unit was disapproved by the coop board members, despite an exclusion in the proprietary lease for a stockholder-to-stockholder exemption from the requirements of board approval for assignment of shares. Plaintiff, subsequently, commenced an action for legal malpractice and intentional tort against the coop’s attorney, Silberman.

Issue: Was Silberman liable to Sayeh for alleged damages sustained by the coop’s wrongful disapproval of his application to purchase an additional unit?

Ruling: No. The Court dismissed Sayeh’s claim for legal malpractice against Silberman, since “there [was] no evidence of privity or near privity to support the imposition of [such] a claim”. The Court also dismissed the claim for intentional tort, since there was no evidence of “collusion, malice, or fraud to warrant the imposition of liability”.

Lesson: An attorney will not be held liable to a third-party with whom he has no attorney-client relationship, nor any reason to suspect that the third-party is relying on him for advice.

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Fiduciary Duties to Third-Parties: No Affirmative Misrepresentations

Posted on February 12, 2010 by Krishna Shah

Petrillo v. Bachenberg, 139 N.J. 472 (1995)

Student Contributor: Evan Kusnitz

NJ Underlying Real Estate Transaction

Facts: A purchaser of real estate sued the seller and the seller’s attorney. The seller’s attorney had forwarded to the seller an incomplete copy of the results of percolation tests conducted by a previous owner to determine the subject property’s ability to hold a septic tank. During negotiations, the seller gave the incomplete copy of the test results to the purchaser. When the purchaser performed her own tests after the contract had been signed, she became aware of the actual quality of the land and told the seller that the contract was null and void. The seller refused to return the purchaser’s deposit. The purchaser subsequently brought suit against the seller’s attorney for, among other claims, breach of fiduciary duty.

Issue: Does an attorney who represents a seller in a real estate transaction owe any duty to the purchaser of the subject property?

Ruling: The court applied a “relaxed” privity rule, holding that an attorney for a real estate seller who makes affirmative misrepresentations by providing misleading information concerning the subject of the transaction, violates a fiduciary duty to a purchaser who will rely on the material misrepresentations to his detriment.

Lesson: A seller’s attorney has a fiduciary duty of care to the buyer and this duty exists when the attorney knows, or should know, that non-client will rely on the attorney’s affirmative misrepresentations.

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