Barcelo v. Elliott

923 S.W.2d 575, 1996 WL 242580

• Court: Texas Supreme Court
• Decided: July 8, 1996
• Docket: 95-0341
• Status: Published

Opinions

PHILLIPS, Chief Justice,

delivered the opinion of the Court,

in which GONZALEZ, HECHT, ENOCH, and BAKER, Justices, joined.

The issue presented is whether an attorney who negligently drafts a will or trust agreement owes a duty of care to persons intended to benefit under the will or trust, even though the attorney never represented the intended beneficiaries. The court of appeals held that the attorney owed no duty to the beneficiaries, affirming the trial court’s summary judgment for the defendant-attorney. • — • S.W.2d-, 1995 WL 51054. Because the attorney did not represent the beneficiaries, we likewise conclude that he owed no professional duty to them. We accordingly affirm the judgment of the court of appeals.

I

After Frances Barcelo retained attorney David Elliott to assist her with estate planning, Elliott drafted a will and inter vivos trust agreement for her. The will provided for specific bequests to Barcelo’s children, devising the residuary of her estate to the inter vivos trust. Under the trust agreement, trust income was to be distributed to Barcelo during her lifetime. Upon her death, the trust was to terminate, assets were to be distributed in specific amounts to Barcelo’s children and siblings, and the remainder was to pass to Barcelo’s six grandchildren. The trust agreement contemplated that the trust would be funded by cash and shares of stock during Barcelo’s lifetime, although the grandchildren contend that this never occurred. Barcelo signed the will and trust agreement in September 1990.

Barcelo died on January 22, 1991. After two of her children contested the validity of the trust, the probate court, for reasons not disclosed on the record before us, declared the trust to be invalid and unenforceable. Barcelo’s grandchildren — the intended remainder beneficiaries under the trust — subsequently agreed to settle for what they contend was a substantially smaller share of the estate than what they would have received pursuant to a valid trust.

Barcelo’s grandchildren then filed the present malpractice action against Elliott and his law firm (collectively “Elliott”). Plaintiffs allege that Elliott’s negligence caused the trust to be invalid, resulting in foreseeable injury to the plaintiffs.¹ Elliott moved for summary judgment on the sole ground that he owed no professional duty to the grandchildren because he had never represented them. The trial court granted Elliott’s motion for summary judgment.

The court of appeals affirmed, concluding that under Texas law an attorney preparing estate planning documents owes a duty only to his or her client — the testator or trust settlor — not to third parties intended to benefit under the estate plan. — S.W.2d at _.

II

The sole issue presented is whether Elliott owes a duty to the grandchildren that could give rise to malpractice liability even though he represented only Frances Bareelo, not the grandchildren, in preparing and implementing the estate plan.

A

At common law, an attorney owes a duty of care only to his or her client, not to third parties who may have been damaged by the attorney’s negligent representation of the client. See Savings Bank v. Ward, 100 U.S. 195, 200, 25 L.Ed. 621 (1879); Annotation, Attorney’s Liability, to One Other Than Immediate Client, for Negligence in Connection with Legal Duties, 61 A.L.R. 4th 615, 624 (1988). Without this “privity barrier,” the rationale goes, clients would lose control over the attorney-client relationship, and attorneys would be subject to almost unlimited liability. See Helen Jenkins, Privity — A Texas-Size Barrier to Third Parties for Negligent Will Drafting — An Assessment and Proposal, 42 BayloR L.Rev. 687, 689-90 (1990). Texas courts of appeals have uniformly applied the privity barrier in the estate planning context. See Thomas v. Pryor, 847 S.W.2d 303, 304-05 (Tex.App.— Dallas 1992), judgm’t vacated by agr., 863 S.W.2d 462 (Tex.1993); Dickey v. Jansen, 731 S.W.2d 581, 582-83 (Tex.App.— Houston [1st Dist.] 1987, writ ref'd n.r.e.); Berry v. Dodson, Nunley & Taylor, 717 S.W.2d 716, 718-19 (Tex.App.— San Antonio 1986), judgm’t vacated by agr., 729 S.W.2d 690 (Tex.1987).

Plaintiffs argue, however, that recognizing a limited exception to the privity barrier as to lawyers who negligently draft a will or trust would not thwart the rule’s underlying rationales. They contend that the attorney should owe a duty of care to persons who were specific, intended beneficiaries of the estate plan. We disagree.

B

The majority of other states addressing this issue have relaxed the privity barrier in the estate planning context. See Lucas v. Hamm, 56 Cal.2d 583, 15 Cal.Rptr. 821, 825, 364 P.2d 685, 689 (1961), cert. denied, 368 U.S. 987, 82 S.Ct. 603, 7 L.Ed.2d 525 (1962); Stowe v. Smith, 184 Conn. 194, 441 A.2d 81, 83 (1981); Needham v. Hamilton, 459 A.2d 1060, 1062 (D.C.1983); DeMaris v. Asti 426 So.2d 1153, 1154 (Fla.Dist.Ct.App.1983); Ogle v. Fuiten, 102 Ill.2d 356, 80 Ill.Dec. 772, 774-75, 466 N.E.2d 224, 226-27 (1984); Walker v. Lawson, 526 N.E.2d 968, 968 (Ind. 1988); Schreiner v. Scoville, 410 N.W.2d 679, 682 (Iowa 1987); Pizel v. Zuspann, 247 Kan. 54, 795 P.2d 42, 51 (1990); In re Killingsworth, 292 So.2d 536, 542 (La.1973); Hale v. Groce, 304 Or. 281, 744 P.2d 1289, 1292-93 (1987); Guy v. Liederbach, 501 Pa. 47, 459 A.2d 744, 751-53 (1983); Auric v. Continental Cas. Co., 111 Wis.2d 507, 331 N.W.2d 325, 327 (1983). But see Lilyhorn v. Dier, 214 Neb. 728, 335 N.W.2d 554, 555 (1983); Viscardi v. Lerner, 125 A.D.2d 662, 510 N.Y.S.2d 183, 185 (1986); Simon v. Zipperstein, 32 Ohio St.3d 74, 512 N.E.2d 636, 638 (1987).

While some of these states have allowed a broad cause of action by those claiming to be intended beneficiaries, see Stowe, 441 A.2d at 84; Ogle, 80 Ill.Dec. at 775, 466 N.E.2d at 227; Hale, 744 P.2d at 1293, others have limited the class of plaintiffs to beneficiaries specifically identified in an invalid will or trust. See Ventura County Humane Society v. Holloway, 40 Cal.App.3d 897, 115 Cal.Rptr. 464, 468 (1974); DeMaris, 426 So.2d at 1154; Schreiner, 410 N.W.2d at 683; Kirgan v. Parks, 60 Md.App. 1, 478 A.2d 713, 718-19 (1984) (holding that, if cause of action exists, it does not extend to situation where testator’s intent as expressed in the will has been carried out); Ginther v. Zimmerman, 195 Mich.App. 647, 491 N.W.2d 282, 286 (1992) (same); Guy, 459 A.2d at 751-52. The Supreme Court of Iowa, for example, held that

a cause of action ordinarily will arise only when as a direct result of the lawyer’s professional negligence the testator’s intent as expressed in the testamentary instruments is frustrated in whole or in part and the beneficiary’s interest in the estate is either lost, diminished, or unrealized.

Schreiner v. Scoville, 410 N.W.2d 679, 683 (Iowa 1987).

C

We agree with those courts that have rejected a broad cause of action in favor of beneficiaries. These courts have recognized the inevitable problems with disappointed heirs attempting to prove that the defendant-attorney failed to implement the deceased testator’s intentions. Certainly allowing extrinsic evidence would create a host of difficulties. In DeMaris v. Asti, 426 So.2d 1153, 1154 (Fla.Dist.Ct.App.1983), for example, the court concluded that “[tjhere is no authority — the reasons being obvious — for the proposition that a disappointed beneficiary may prove, by evidence totally extrinsic to the will, the testator’s testamentary intent was other than as expressed in his solemn and properly executed will.” Such a cause of action would subject attorneys to suits by heirs who simply did not receive what they believed to be their due share under the will or trust. This potential tort liability to third parties would create a conflict during the estate planning process, dividing the attorney’s loyalty between his or her client and the third-party beneficiaries.

Moreover, we believe that the more limited cause of action recognized by several jurisdictions also undermines the policy rationales supporting the privity rule. These courts have limited the cause of action to beneficiaries specifically identified in an invalid will or trust. Under these circumstances, courts have reasoned, the interests of the client and the beneficiaries are necessarily aligned, negating any conflict, as the attorney owes a duty only to those parties which the testator clearly intended to benefit. See, e.g., Needham, 459 A.2d at 1062.

In most cases where a defect renders a will or trust invalid, however, there are concomitant questions as to the true intentions of the testator. Suppose, for example, that a properly drafted will is simply not executed at the time of the testator’s death. The document may express the testator’s true intentions, lacking signatures solely because of the attorney’s negligent delay. On the other hand, the testator may have postponed execution because of second thoughts regarding the distribution scheme. In the latter situation, the attorney’s representation of the testator will likely be affected if he or she knows that the existence of an unexecuted will may create malpractice liability if the testator unexpectedly dies.

The present case is indicative of the conflicts that could arise. Plaintiffs contend in part that Elliott was negligent in failing to fund the trust during Barcelo’s lifetime, and in failing to obtain a signature from the trustee. These alleged deficiencies, however, could have existed pursuant to Barcelo’s instructions, which may have been based on advice from her attorneys attempting to represent her best interests. An attorney’s ability to render such advice would be severely compromised if the advice could be second-guessed by persons named as beneficiaries under the uneonsummated trust.

In sum, we are unable to craft a bright-line rule that allows a lawsuit to proceed where alleged malpractice causes a will or trust to fail in a manner that easts no real doubt on the testator’s intentions, while prohibiting actions in other situations. We believe the greater good is served by preserving a bright-line privity rule which denies a cause of action to all beneficiaries whom the attorney did not represent. This will ensure that attorneys may in all eases zealously represent their clients without the threat of suit from third parties compromising that representation.

We therefore hold that an attorney retained by a testator or settlor to draft a will or trust owes no professional duty of care to persons named as beneficiaries under the will or trust.²

D

Plaintiffs also contend that, even if there is no tort duty extending to beneficiaries of an estate plan, they may recover under a third-party-beneficiary contract theory. While the majority of jurisdictions that have recognized a cause of action in favor of will or trust beneficiaries have done so under negligence principles,³ some have allowed recovery in contract.⁴

In Texas, however, a legal malpractice action sounds in tort and is governed by negligence principles. See Cosgrove v. Grimes, 774 S.W.2d 662, 664 (Tex.1989); Willis v. Maverick, 760 S.W.2d 642, 644 (Tex.1988). Cf. Heyer v. Flaig, 70 Cal.2d 223, 74 Cal.Rptr. 226, 228, 449 P.2d 161, 164 (1969) (recognizing that third-party-beneficiary contract theory “is conceptually superfluous since the crux of the action must lie in tort in any case; there can be no recovery without negligence”). Even assuming that a client who retains a lawyer to draft an estate plan intends for the lawyer’s work to benefit the will or trust beneficiaries, the ultimate question is whether, considering the competing policy implications, the lawyer’s professional duty should extend to persons whom the lawyer never represented. For the reasons previously discussed, we conclude that the answer is no.

For the foregoing reasons, we affirm the judgment of the court of appeals.

OWEN, J., did not participate in the decision.

1 . The plaintiffs alleged that Elliott acted negligently when he:

A. provided in the trust agreement that it would not be effective until signed by the trustee, designated to be First City Bank of Houston, and then failed to obtain the execution of the trust document by the trustee;

B. drafted Mrs. Barcelo’s will so as to provide that the residuary of her estate would pass into the trust he sought to create for Mrs. Barcelo, and then provided in the trust agreement that the trust would terminate upon Mrs. Barcelo’s death, leaving her residuary to pass by intestacy to her children instead of her six grandchildren, including Plaintiffs, as provided in the trust agreement; and

C. failed to take the necessary steps on behalf of Mrs. Bareelo to fund the trust with the shares of stock....

2 . We express no opinion as to whether the beneficiary of a trust has standing to sue an attorney representing the trustee for malpractice. Cf. Thompson v. Vinson & Elkins, 859 S.W.2d 617, 621-23 (Tex.App.— Houston [1st Dist.] 1993, writ denied) (holding that beneficiary lacked standing to sue trustee’s attorney).

3 . See Heyer v. Flaig, 70 Cal.2d 223, 74 Cal.Rptr. 225, 228, 449 P.2d 161, 164 (1969); Needham, 459 A.2d at 1062; DeMaris, 426 So.2d at 1154; Schreiner, 410 N.W.2d at 682; Pizel, 795 P.2d at 51; Auric, 331 N.W.2d at 329.

4 . See Stowe, 441 A.2d at 83; Killingsworth, 292 So.2d at 542; Guy, 459 A.2d at 751-52. Other states have recognized a cause of action under both negligence and contract. See Ogle, 80 Ill. Dec. at 775, 466 N.E.2d at 227; Hale, 744 P.2d at 1292.