When does a California estate planning attorney owe a duty of care to people other than the client?  Planners can breathe easier after a recent appellate ruling. The court clarified the limits on legal malpractice claims brought by nonclients.

In Gordon v. Ervin, Cohen & Jessup LLP (2023) ___ Cal.App.5th ___, the court explained that a client’s intent to benefit a nonclient must be clear, certain and undisputed in order for the lawyer to owe a duty to the nonclient. If the facts are ambiguous, the nonclient cannot sue the lawyer for malpractice.

Meet the Gordons

Arnold and Claire Gordon married and had three children in the 1940s: Jeffrey, Bruce and Kenneth.  They created a trust in 1983. Arnold died in 1989. Claire passed in 2017 at the age of 100. By then, the value of the family assets exceeded $40 million.

Claire was close to Kenneth but had strained relationships with Kenneth’s wife and his three children.  After making numerous changes to the trust over a decade, Claire signed a twelfth amendment dated 2006 in which she disinherited the three grandchildren altogether.

For estate tax minimization purposes, Claire then created three limited liability companies to hold commercial properties. Claire transferred ownership interests in the LLCs to her three sons. She did not restrict them from leaving their interests to their children.

Upon Claire’s passing, Bruce and his sons sued the attorney who drafted the documents for Claire: attorney Reeve Chudd of Ervin Cohen & Jessup LLP. Bruce claimed that he and/or his sons would have received Kenneth’s interests in the LLCs had Chudd properly effectuated Claire’s intent to disinherit Kenneth’s children.

Chudd and his firm moved for summary judgment on the ground that they represented Claire and owed Bruce and sons no duty of care. A judge in Los Angeles County Superior Court granted the motion.  Bruce and sons appealed.

Appellate Court Explains When Duties Run to Nonclients

While not breaking new ground, the Gordon court issued a better roadmap for evaluating when estate planning attorneys owe duties to nonclients. The court also explained the underlying policy concerns – chiefly, the risk that lawyers might be less able to represent clients in accord with their duty of loyalty if they have to worry about claims by nonclients.    

In the case at hand, Claire was Rudd’s only client. Bruce and sons, as nonclients, claimed they were harmed by Rudd’s negligent failure to fully implement Claire’s desire to disinherit Kenneth’s children.

The appellate court agreed that Bruce and sons were out of luck. They had not raised a triable issue of material fact such that their claims could be denied on summary judgment, i.e., without a trial.

After reviewing prior cases, the Gordon court explained that a lawyer owes a duty to a nonclient third party only if the client’s intent to benefit that third party (in the way the third party asserts in their malpractice claim) is clear, certain and undisputed. “In other words, courts will recognize a duty to a nonclient plaintiff – and thereby allow that plaintiff to sue the lawyer for legal malpractice – only when the plaintiff, as a threshold matter, establishes that the client, in a clear, certain and undisputed manner, told the lawyer, ‘Do X’ (where X benefits the plaintiff).”

Two corollaries follow this limitation of liability. 

First, a lawyer “owes no duty to a nonclient plaintiff to effectuate the client’s directive to “Do X” when the nonclient’s claim raises a question about what ‘X’ is – that is, where there is a question about whether the client intended to benefit the plaintiff or how the client intended to do so.” 

Second, a lawyer “has no duty to a nonclient plaintiff beyond implementing the client’s clear directive to ‘Do X’.” In other words, a lawyer’s “duty to a nonclient does not extend to being a babysitter, a risk mitigation strategist, a sounding board, or a mental health specialist for the client.”

Applying these principles, the appellate court found that Chudd and his firm did not owe Bruce and sons a duty to draft the LLC operating agreements in a way that disinherited Kenneth’s children because Claire’s intent to preclude Kenneth’s children from being assigned any interest in the LLCs was not clear, certain or undisputed.

Indeed, the undisputed evidence showed that Claire never told Chudd of a desire to prevent Kenneth from passing his interest in the LLCs to his children. It was also undisputed that Claire, in the ten-plus years between executing the LLC operating agreements and her death, never expressed any discontent with the terms of the LLC operating agreements.

Claire’s intent that Kenneth’s children not receive a share of what was left in her estate did not necessarily prove she intended to deprive them of assets passing through Kenneth outside of her trust, such as the LLC interests.

Interestingly, the court rejected the argument that Claire had created an “integrated estate plan,” such that her intent with respect to lifetime gifts of the LLC interests should be presumed to match her intent with respect to testamentary gifts. This was a bridge too far: a court cannot “import a testator’s intent from a testamentary trust into an inter vivos [i.e., lifetime] transfer document that, on its face, contradicts that testamentary intent.”

Takeaways

An estate planning attorney who botches a client’s expressed desire to favor another may be liable to that other person as the intended beneficiary. Yet, where the evidence does not plainly show the client’s specific intent to benefit the nonclient, the attorney will not be liable to the nonclient.

Gordon gives lawyers and malpractice carriers clearer space to fend off claims from nonclients, such as descendants of the client, who claim they were deprived of a larger share of the client’s estate.

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