Hodge v. Cichon, — So.3d —-, 2012 WL 315846 (Fla. 5th DCA February 03, 2012)

Under Florida law, the three elements of a legal malpractice action are generally described as follows:

  1. the existence of an attorney/client relationship between the plaintiff and the attorney (i.e., “privity of contract“);
  2. the attorney’s neglect of a reasonable duty; and
  3. that such negligence resulted in and was the proximate cause of loss to the plaintiff.

The “privity of contract” requirement has been relaxed/eliminated where it was the apparent intent of the client to benefit a third party. The most common example of this exception being in the estate planning area, where the plaintiff is a named beneficiary of the decedent’s will and the attorney-defendant drafted the will. However, the third party intended beneficiary exception to the rule of privity is NOT limited to will drafting cases. It can extend to any third party who was the intended beneficiary of the lawyer’s work. How far the privity exception goes is what this case is all about. 

Can estate beneficiaries sue guardians’ lawyers for estate planning malpractice? YES!

In this case the plaintiffs were named beneficiaries of the decedent’s will. Prior to his death, the decedent was adjudicated partially incompetent and three guardians were appointed for him. The guardians then obtained a court order allowing them to implement an estate-tax savings plan, including the creation of a family limited partnership (“FLP”). The goal of this estate planning was to reduce taxes for the benefit of the estate’s beneficiaries, including the plaintiffs. Unfortunately, when the decedent died, about 2 1/2 years later, the FLP plan hadn’t been fully implemented, thus forfeiting the anticipated tax savings.

Apparently, during the course of the guardianship proceeding the plaintiffs in this case had been at odds with the guardians and their attorneys. It’s undeniable, that the plaintiffs were never represented as counsel by the lawyers for the guardians. And yet, these same plaintiffs sued the guardians’ lawyers for malpractice. Why? Because they were the intended third-party beneficiaries of the lawyers’ work, NOT because there was ever any kind of attorney/client relationship between them and the lawyers. So says the 5th DCA:

Generally, a party who retains an attorney is in privity with that attorney and may bring a negligence action for legal malpractice. Angel, Cohen & Rogovin v. Oberon Inv., N.V., 512 So.2d 192, 194 (Fla.1987). A limited exception to the privity requirement in the area of will drafting allows an intended beneficiary to file a legal malpractice claim for losses resulting from a lawyer’s actions or inactions, where it was the apparent intent of the client to benefit that third party. Id.; See Espinosa v. Sparber, Shevin, Shapo, Rosen & Heilbronner, 612 So.2d 1378, 1380 (Fla.1993); Kinney v. Shinholser, 663 So.2d 643, 646 (Fla. 5th DCA 1995). Standing to pursue a legal malpractice action is conferred upon “those who can show that the testator’s intent as expressed in the will is frustrated by the negligence of the testator’s attorney.” Espinosa, 612 So.2d at 1380. While the standing exception has been relaxed in will drafting situations, “the third party intended beneficiary exception to the rule of privity is not limited to will drafting cases.” Winston v. Brogan, 844 F.Supp. 753, 756 (S.D.Fla.1994) (citing Greenberg v. Mahoney Adams & Criser, P.A., 614 So.2d 604, 605 (Fla. 1st DCA 1993)).

Appellees take the position that there is “absolutely no evidence of any attorney/client relationship” between Appellants and Appellees. The record demonstrates that the overall intent of Cowart’s retaining counsel was to create and establish a FLP for the purpose of preserving and maintaining the estate assets and preventing its dissipation through estate taxes. The petition seeking appointment of a guardian of Cowart’s property noted that “[t]he estate plan calls for the creation of a family limited partnership into which the Ward’s assets are transferred.” The expectation, according to the petition, was that “[u]nder current tax laws, the implementation of this estate tax planning may save the estate as much as forty percent (40%) in estate taxes.” The purpose of the estate plan was to benefit all named and intended beneficiaries; the larger the net estate, the better for all who might partake.

While there may have been animosity or acrimony among the various heirs and beneficiaries, the actions of retained counsel and the direction of the court in ordering the implementation of the estate plan were intended to benefit all and harm none. As noted in Winston, and as appears herein, while there may be conflict among the parties, there is no indication of a conflict of interest regarding the need to maximize the estate vis-à-vis less taxes and estate preservation. 844 F.Supp. at 756. If the dispute concerns whether or not Appellants were intended beneficiaries, the issue is one of fact for the jury to determine. See id. at 757.

Lesson learned? Guardianship lawyers beware:

It’s not unusual for guardianship lawyers to get drawn into complex tax planning for wealthy wards. How might this happen? Assume “mom” is elderly and suffering from dementia. For her own safety, her children have her adjudicated legally incapacitated, and a guardian is appointed for her. Once the family takes stock of mom’s assets, they realize she’s done little to no estate planning. With a little tax planning, maybe involving a FLP, the family can save hundreds of thousands of dollars in taxes without prejudicing mom in any way. The family asks the guardianship court for approval to proceed, gets it, and tells guardian to make it happen. Guardian turns to lawyer (i.e., you), says make it happen. Ward dies before you make it happen. Presto! Guardianship lawyer is now a defendant in an estate planning malpractice suit. That’s what happened in Winston v. Brogan, 844 F.Supp. 753 (S.D.Fla.1994) (cited by the 5th DCA above), and what happened in this case.

Bottom line, if you’re a guardianship lawyer, make sure you know what you’re doing before you get pulled into some complex, tax-driven estate planning as part of a guardianship proceeding. Complex tax planning is usually not part of the deal for most guardianship lawyers. Don’t dabble; make the guardian hire an expert. If you get this wrong, you can get sued, and the plaintiffs won’t be your client, the guardian (who may love you!), it’ll be people you never met (or may have even been adverse to you in the guardianship proceeding): the estate’s beneficiaries.