Who Says Lawyers Are Liable To Third Parties?

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Carol Langford

Sometimes it’s a good thing to become a trendsetter. However, being sued by someone you don’t even know and then being held liable might not be a bandwagon you want to jump on. You know you owe duties to your client, but what about owing duties to people outside of the representation who are not even your clients?  In the past, courts were hesitant to extend lawyer liability to third party non-clients. That mind set has changed over the years, subjecting more and more lawyers to liability.

Third party liability is not a new concept. From products liability cases involving automobile tires to tainted food, liability to the public can exist if someone makes a poor product and a consumer is injured. Where everything is being commoditized, an attorney’s work is now treated the same. One of the first cases to discuss this was Biakanja v. Irving 49 Cal. 647 (1958). There, a notary public got into trouble when he failed to properly attest a will resulting in a heir receiving only a small fraction of property that should have went entirely to him.  The court stated early on that third parties could sue an attorney (or non-attorney in this case) when the transaction was intended to affect the plaintiff, even when no privity exists, depending on public policy concerns and other factors. The court’s decision in Biakanja was focused on correcting a moral wrong (the unlawful practice of law), but the standard was used later to hold lawyers liable for instruments that are improperly drafted in Roberts v. Ball 57 Cal. App. 3d 104, 110 (1976). There, the court stated “an attorney may be liable for damage caused by his negligence to a person intended to be benefited by his performance, irrespective of any lack of privity of contract between the attorney and the party to be benefited by his performance…”

With any type of practice, lawyers must remember to be very careful about what they say and how it is said. With documents being digitalized and distributed to millions of people via the internet within a matter of seconds, you never know when someone other than your client will rely on your work. If your work wasn’t up to par, you could be sued.

The drafting of documents is a particularly problematic area. This is especially true with documents used in security offerings and in wills & trust matters.  For example, in FDIC v. O’Melveny & Myers, 969 F.2d 744 (1992) (reversed on other grounds), the court held that the lawyers who represented a bank had a duty to conduct a reasonable investigation to prevent misleading information from being put in their offering materials, because they knew the materials were going to be distributed as disclosure documents to public investors. Since the law firm breached their duty, the court held that the FDIC, who took receivership of the bank, had standing to bring a suit based on third party liability.

The rationale for O’Melveny was later explained in Loyd v. Webber 208 F.3d 755 (2000) where the court said that lawyers have a duty to conduct a reasonable investigation in security offerings because security offerings are a highly specialized field. Those documents by their very nature are technical and relied on by investors. But when the bankruptcy trustee in Loyd tried to argue lawyers have an automatic duty to make a reasonable investigation of their clients in bankruptcy cases the court disagreed. They stated that O’Melveny was dependent on the fact that a law firm was hired to produce documents which contained inadequate disclosures to the public about, iter alia, the financial soundness of their client.

These two cases tell me that lawyers who work in highly technical fields where the public relies on the attorney’s work will be held liable because the public depends on the lawyer to make sure the documents are factually and legally correct before they hand over their money.

There have been similar rulings for wills & trust practitioners as well. In Goodman v. Kennedy 18 Cal 3d 335, 342 (1976) the court found that an attorney may be liable to the intended beneficiaries of a deceased testator for the amount the intended beneficiary would have received from the testator’s estate if the attorney had exercised due care in drafting the will in accordance with the testator’s expressed wishes. However, wills & trust practitioners are not subject to infinite liability, as pointed out in Lucas v. Hamm 56 Cal. 2d 583 (1961). This is particularly true when their advice is reasonable and on a questionable area of the law. The court in Lucas said “the attorney is not liable for every mistake he may make in his practice… or of the validity of an instrument that he is engaged to draft; and he is not liable for being in error as to a question of law on which reasonable doubt may be entertain[ed] by well-informed lawyers.”

With any type of practice, lawyers must remember to be very careful about what they say and how it is said. With documents being digitalized and distributed to millions of people via the internet within a matter of seconds, you never know when someone other than your client will rely on your work. If your work wasn’t up to par, you could be sued.


Carol M. Langford is an attorney in Walnut Creek specializing in ethics, attorney conduct and admissions matters.  She is also an adjunct professor of professional responsibility at the University of California Berkeley, Boalt Hall School of Law.

Filed Under: Ethics Corner

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