Debtor and creditor: Noth v. Wynn, 59 Ohio App.3d 65, 571 N.E.2d 446 (Hamilton 1988) (an attorney who represented a lender in connection with a real-estate transaction was immune from liability to the purchasers for the alleged failure to disclose the title restrictions because the
undisputed evidence showed that the client and the third party had a debtor-creditor relationship and were not in privity with each other).
Fraud: In the course of holding that fraud allegations against attorneys by nonclients were insufficient for failure to allege that the defendants committed the allegedly wrongful acts for their own personal gain, the court acknowledged the Scholler rule requiring privity or malice, but made no real analysis of whether either was present. DiPaolo v. DiVictor, 51 Ohio App.3d 166, 555 N.E.2d 969
(Franklin 1988).
Invasion of privacy: In a suit against the attorneys defending plaintiffs’ former lawyers against a malpractice claim, plaintiffs (the Hahns) alleged that the defendant-attorneys (Satullo and his firm, Reminger & Reminger) disclosed private information contained in the Hahns’ bank credit file.
Assuming this to be so, the Tenth District Court of Appeals held that there could be no recovery under the Scholler rule because “at the time of the alleged disclosure, plaintiffs were not in privity with Satullo’s clients, plaintiffs’ former attorneys against whom plaintiffs brought suit.” Hahn v. Satullo, 156 Ohio App.3d 412, 2004 Ohio 1057, 806 N.E.2d 567, at para. 65 (Franklin).
Malpractice; class action: Plaintiffs sued attorneys for malpractice for erroneously opining that a program was not a sale of securities under Ohio law. Plaintiffs did not register the program as a securities sale and sold the program to over 400 purchasers. A cease-and-desist order was issued by
the Ohio Division of Securities. Plaintiffs sought class certification on behalf of the purchasers; the trial court denied certification. The court of appeals affirmed, holding that the class members could not maintain a malpractice action against defendants because the class members were not in privity with the plaintiffs. Columbus Consol. Agency, Inc. v. Wolfson, 70 Ohio App.3d 467, 591 N.E.2d 385 (Franklin 1990) (applying Scholler rule).
Malpractice; corporate directors: Inasmuch as on the facts presented there was no privity between corporate directors and the corporation, the attorneys for the corporation (but not for the directors) were not liable to the directors for failure to inform them of possibility of personal liability arising out of corporation’s nonpayment of sales taxes. Hile v. Firmin, Sprague & Huffman Co., L.P.A., 71 Ohio App.3d 838, 595 N.E.2d 1023 (Hancock 1991) (Scholler applied).
Malpractice; divorce proceedings: Since an attorney who represents the wife in a matrimonial action does not automatically represent the interests of a minor child of the marriage, the wife cannot successfully maintain a malpractice action against the attorney on behalf of the child based on allegations that the attorney negligently negotiated and prepared the child-support provisions of a separation agreement. Scholler v. Scholler, 10 Ohio St.3d 98, 462 N.E.2d 158 (1984). In such a case, in the absence of allegations that the attorney acted maliciously, the child is not, as he must be, in privity with the attorney’s client (the wife) because “it cannot be said that the interests of the wife in negotiating a separation agreement to achieve a fair division of marital assets are concurrent with the interests of the child to receive support.” Id. at 104, 462 N.E.2d at 164. See Darrow v. Zigan, 2009 Ohio 2205, 2009 Ohio App. LEXIS 1860 (Hancock) (failure of ex-spouse’s lawyer to file quitclaim deed as promised to detriment of plaintiff, in context of dissolution of marriage proceeding, not actionable; Scholler qualified immunity rule applied; no allegation that defendant/lawyer acted with malice and plaintiff was not in privity with ex-spouse; “a dissolution of marriage, though not an adversarial proceeding, involves conflicting aims and objectives. Ultimately, the interests of the parties to the dissolution are not the same.” Id. at para. 20.); Strauch v. Gross, 10 Ohio App.3d 303, 462 N.E.2d 433 (Franklin 1983) (attorney for plaintiff’s former spouse in dissolution of marriage proceeding not liable to plaintiff for malpractice where the plaintiff was neither the attorney’s client nor in privity with his client; no duty owing by attorney to plaintiff in such circumstances, whether the attorney’s conduct was negligent or intentional). [Query whether intentional malicious conduct would require a different result; malicious conduct not discussed by the court. See “Liability to Nonclient Found or Supported Based on Malicious Conduct” infra. Plaintiff pleaded malicious conduct, but filed no affidavit or other evidence in opposition to the attorney’s successful motion for summary judgment, which was affirmed on appeal.]
Malpractice; embezzlement by client: In Am. Express Travel Related Servs. Co. v. Mandilakis, 111 Ohio App.3d 160, 165, 675 N.E.2d 1279, 1282 (Cuyahoga 1996), the Eighth District Court of Appeals held: “Absent any evidence of privity between [the client] and American Express [or First Data, the plaintiffs here] or malice by [the client’s attorney], we conclude that there is no basis to apply these exceptions to the general rule that attorneys are not liable to non-client third parties for legal malpractice.” (bracketed material added). Former OH DR 7-102(B)(1), which placed a duty on an attorney to disclose a client’s fraud to a defrauded third party (which duty with respect to fraud on any person was not adopted as part of Ohio Rule 3.3(b); see section 3.3:700), was held not to give rise to actionable civil liability to nonclient third parties, as opposed to disciplinary action, for its violation. Thus, the attorney could not be liable under a legal malpractice theory to companies from which the client embezzled funds, based on the lawyer’s failure, once he learned of the embezzlement, to ask the client to stop the scheme or to notify the companies. The Mandilakis case is also discussed in sections 1.1:370 and 4.1:300.
Malpractice; estates and trusts: As noted above, ORC 1339.18 (now renumbered as ORC 5815.16) purports to eliminate any duty of a lawyer for a fiduciary (defined to include a trustee of an express trust and an executor or administrator of decedent’s estate) to those to whom the fiduciary owes fiduciary obligations. As also noted above, however, this statute has thus far been ignored by the courts. This state of affairs requires that the pre-statute case law on privity in the estates and trusts context must still be consulted.
Pursuant to that case law, a distinction is drawn between situations in which the beneficiary’s interest is vested and those in which it is not. Vested beneficiaries are viewed as being in privity with the fiduciary of the estate and hence can bring malpractice actions against the fiduciary’s attorney. E.g., Elam v. Hyatt Legal Servs., 44 Ohio St.3d 175, 541 N.E.2d 616 (1989). Beneficiaries whose interests have not yet vested are not in privity and, in the absence of malice, cannot recover against the attorney in malpractice. See, e.g., Simon v. Zipperstein, 32 Ohio St.3d 74, 512 N.E.2d 636 (1987) (per curiam) (no privity with testator because potential beneficiary’s interest not vested); Lewis v.
Star Bank, N.A., 90 Ohio App.3d 709, 630 N.E.2d 418 (Butler 1993) (potential beneficiaries of revocable inter vivos trust are not in privity with settlor and therefore cannot sue settlor’s attorney for malpractice in allegedly failing to provide certain estate-planning and tax advice prior to settlor’s death; court, reconciling Simon and Elam, notes that Elam involved lawyer error made after death of testator, when plaintiff-beneficiary’s rights were fully vested, whereas negligence in Simon occurred prior to testator’s death). Likewise, in Smith v. Brooks, No. 76564, 2000 Ohio App. LEXIS 4167 (Cuyahoga Sept. 14, 2000) (summary judgment for defendant attorneys affirmed), the court held that appellant children and grandchildren were only potential beneficiaries when the alleged malpractice occurred – because testator’s wife had complete control over the funds in testator’s estate, “appellants had no entitlement to anything; thus, since their interest had not vested, they had no privity.” Id. at
*18. A similar result was reached in Dykes v. Gayton, 139 Ohio App.3d 395, 744 N.E.2d 199 (Franklin 2000), where the court of appeals affirmed a dismissal in a suit by intended beneficiaries under a will against the lawyer preparing the will, who neglected to obtain the statutorily required signature of one of the two attesting witnesses. As a result, the will was not admitted to probate.
Citing Scholler and Simon v. Zipperstein (but not Elam) as controlling authority, the court
concluded that the trial court was correct in holding that the failure to allege privity with the decedent was fatal.
Against the backdrop of these decisions finding no privity, particularly Simon v. Zipperstein, the more recent, and important, decision in Shoemaker v. Gindlesberger, 118 Ohio St.3d 226, 2008 Ohio 2012, 887 N.E.2d 1167, must be considered. In Shoemaker, the defendant-lawyer, at the request of his client, effected a real estate transfer of a farm owned by the client to one of her sons.
(The lawyer, Gindlesberger, also drafted her will and two codicils, apparently leaving the estate assets to her three children equally.) After the client, Mrs. Schlegel, died in 2003, the other two children found that estate assets would have to be sold to pay taxes on the transfer of the farm. They sued the lawyer for malpractice and alleged negligence in preparation of the document transferring the farm and in failing to advise their mother of the tax consequences.
The lower courts ruled for Gindlesberger because of the lack of any attorney-client relationship or privity between the beneficiaries and their mother. In the Supreme Court the beneficiaries argued that Simon should be overruled and that beneficiaries ought to be able to maintain an action for
malpractice against the attorney, “even though the beneficiary is not in privity with the attorney’s client.” Id. at para. 7. The Supreme Court affirmed, with Chief Justice Moyer concurring, joined by two other justices.
The starting point in the Court’s analysis was the Scholler rule, pursuant to which “attorneys in Ohio are not liable to a third party for the good faith representation of a client, unless the third party is in privity with the client for whom the legal services were performed.” Id. para. 9. Citing the result in Simon, the Court said “[t]he same applies here -- the appellants were not in privity with their mother, the client, because they were only potential beneficiaries to her will and their rights as beneficiaries did not vest until her death.” Id. at para. 10.
In making their assault on the privity rule, appellants advanced two public policy arguments -- first, that the “antiquated” Ohio privity rule is the minority rule; second, that “an attorney who drafts a will for a client is aware that his or her professional competence affects not only the client but also those whom the client intends to benefit from the will.” Id. at para. 13. The majority opinion counters with three public policy arguments of its own: the privity rule protects the attorney’s duty of loyalty and effective advocacy for the client, without threat of third-party lawsuits that might compromise the representation; without the privity rule, attorneys could have conflicting duties and divided loyalties;
and without it there would be “unlimited potential liability for the lawyer.” Id. at paras. 14-15. (At this point the Court also invoked Rule 1.7 cmt. [1] to the effect that principles of loyalty and
independent judgment underlie the conflict-of-interest rules; the Court reads this as “underscore[ing]
the need to ensure that a lawyer is not liable to parties who are not in privity with the lawyer’s client.”
Id. at para. 16.). For these reasons, “[w]e decline the appellant’s invitation to relax our strict privity rule.” Id. at para. 17. In the process, the majority noted that it is not necessarily so that the privity rule does not allow a remedy for a wrong and cited cases from other jurisdictions suggesting that the estate or personal representative might stand in the shoes of the testator. “This may well be a solution to the problem, but it is a question for another day.” Id. [But query whether it was not a question presented in the case at bar, inasmuch as one of the appellants was the executor of the estate; perhaps appellants did not pursue this line of argument.] Almost as an afterthought, the majority notes the important fact that
[i]n this case, the basis for extending liability is even more tenuous because the increased tax liability to the estate arose from the transfer of the . . . farm, not from the decedent’s will.
Id. at para. 19.
It is this final point that is at the core of Chief Justice Moyer’s concurrence:
Under the [appellants’] proposed exception, an attorney could be liable to his client’s beneficiaries for negligence in connection with a large and loosely defined group of transactions; the appellants do not present compelling reasons for creating such a broad exception to the privity rule. Nevertheless, I write separately to distinguish the exception proposed by the appellants in this case and the one considered in Simon v. Zipperstein (1987), 32 Ohio St.3d 74, 512 N.E.2d 636, to
acknowledge that, in a case with different facts, there would be compelling reasons for adopting the exception we rejected in Zipperstein.
Id. at para. 23. After noting that there is no case authority anywhere supporting the broader
exception advanced by appellants, that that rule provides no limitation on its scope, and that damage to the beneficiaries in such a case is less foreseeable than it is in a will-drafting case, the Chief Justice cites to courts in “many states” that have allowed beneficiaries to sue for mistakes in preparing a will.
His principal ally, however, is Justice Brown, who argued in his dissent in Zipperstein that no real conflict of interest exists in such a situation. The Chief Justice agrees and quotes Justice Brown’s language that makes the point forcefully – if the lawyer, whose job it is to draft a will that carries out the client’s intentions, fails to do so, “‘with the result that an intended beneficiary receives less than the client desired, surely the client, if he or she were still alive, would want the intended beneficiary to bring an action against the attorney.’” Id. at para. 31 (emphasis in original). Chief Justice Moyer is also persuaded that there is a “strong need for attorney accountability in preparing wills” and that it serves no purpose to continue the strict privity rule for lawyers when it has been abrogated concerning the malpractice liability of other professionals, such as accountants and architects. Id. at para. 33.
Given the Chief Justice’s opinion, one might not want to bet the farm on the continued longevity of the holding in Simon v. Zipperstein.
Since deciding Shoemaker, the Supreme Court has “affirmed on the authority of Shoemaker” the case of Peleg v. Spitz, 2007 Ohio 6304, 2007 Ohio App. LEXIS 5534 (Cuyahoga), aff’d, 118 Ohio St.3d 446, 2008 Ohio 3176, 889 N.E.2d 1019. The Peleg decisions are interesting because, first, the court of appeals, after affirming summary judgment for the defendant attorneys on plaintiff’s
malpractice claim for want of privity, duly noted various other appellate decisions questioning the existing standing/privity rule with respect to potential beneficiaries seeking to sue a lawyer who had allegedly breached the duty of care in preparing a will. And, according to the Eighth District Court of Appeals, “[a] similar argument exits with respect to trusts.” 2007 Ohio 6304, at para. 24 (the plaintiff in Peleg was a potential beneficiary under an irrevocable trust reserving to the settlor the power to change beneficiaries). Second, the Supreme Court affirmance was unanimous, thus
indicating that Chief Justice Moyer’s Shoemaker concurrence, which questioned the viability of the Simon no-privity rule in the will context, would not be extended to testamentary trusts, despite the
court of appeals’ suggestion that a “similar argument exists with respect to trusts.” (See also
Berkmyer v. Serra, 2011 Ohio 5901, 2011 Ohio App. LEXIS 4832 (Stark), discretionary appeal not allowed, 131 Ohio St.3d 1484, 2012 Ohio 1143, 963 N.E.2d 824 (following the Zipperstein no-privity precedent in a revocable testamentary trust/malpractice case brought by trust beneficiaries against the settlor’s lawyer; thereby rejecting appellants’ argument based on the views expressed by Justice Brown dissenting in Zipperstein and Chief Justice Moyer concurring in Shoemaker.) It is also interesting that, if both the Moyer view were to prevail and ORC 1339.18 were to be recognized and enforced, then the law of Ohio would do an about-face on both fronts – malpractice suits by vested beneficiaries against lawyers for fiduciaries, permitted under Elam because privity was present, would be precluded by the statute, and suits by nonvested beneficiaries against lawyers for testators, precluded under Simon because privity was absent, would be permitted.
Another aspect of lawyer liability to nonclients in the trusts and estates area was treated in Hosfelt v.
Miller, No. 97-JE-50, 2000 Ohio App. LEXIS 5506 (Jefferson Nov. 22, 2000). In Hosfelt, the defendant-attorneys were allegedly negligent in giving estate-planning advice to a widow and in the administration of the husband’s estate, with the result that the widow’s estate had to pay a substantial sum in federal estate taxes that could have been avoided. The suit, brought by the administrator of the widow’s estate (not by her beneficiaries), was dismissed on summary judgment by the trial court on the ground that, pursuant to Simon v. Zipperstein, the beneficiaries were only potential beneficiaries and thus not in privity with the client (the widow) for whom the legal services were rendered. The appellate court reversed. Seeing the case in a completely different light, the Seventh District Court of Appeals agreed with appellant that this was an action by the legal representative of the widow’s estate, not by the beneficiaries, to preserve estate assets, that the malpractice claim held by the widow survives her death, and that the legal representative is the proper party to bring such a claim.
See also the Firestone v. Galbreath litigation, which raised the question of lawyer liability for tortious interference with expectancy of inheritance. In an opinion reported at 976 F.2d 279 (6th Cir.
1992), the Sixth Circuit held that the malpractice claim failed for want of privity between the plaintiff beneficiaries of an inter vivos trust and the settlor (their grandmother) with respect to services performed by the grandmother’s attorney before her death. The court of appeals disposed of all issues in the case save one -- whether Ohio recognized a cause of action for intentional interference with expectancy of inheritance, and, if so, who has the right to bring the action. The Sixth Circuit certified the issue to the Ohio Supreme Court, which ruled that the tort is recognized in Ohio and that “any person” who can prove the elements of the tort has the right to maintain the action. Firestone v.
Galbreath, 67 Ohio St.3d 87, 88, 616 N.E.2d 202, 203 (1993). Based on the Supreme Court’s certification decision, the Sixth Circuit reversed the district court’s holding that there was no such tort in Ohio and remanded for factual development and disposition of the issue. Firestone v. Galbreath, 25 F.3d 323 (6th Cir. 1994). On remand, Judge Graham granted the attorney-defendant’s motion for summary judgment and held that plaintiff provided no evidence creating a genuine issue of material fact as to any of the following essential elements of the tort: intentional interference, tortious conduct, or reasonable certainty of realization of the expectancy but for the conduct of defendants. Firestone v. Galbreath, 895 F. Supp. 917 (S.D. Ohio 1995).
Query whether Firestone renders irrelevant one of the two alternative requisites for nonclient suits against lawyers as set forth in Scholler – privity. The Ohio Supreme Court did not address (and was
not asked) against whom the intentional interference tort might be asserted. Even if the plaintiff were in privity, however, it would not be dispositive for purposes of this tort; each of the five elements as set forth by the Supreme Court, 67 Ohio St.3d at 88, 616 N.E.2d at 203, would still have to be established. As the district court noted on remand, plaintiff at most alleged negligence or malpractice,
not asked) against whom the intentional interference tort might be asserted. Even if the plaintiff were in privity, however, it would not be dispositive for purposes of this tort; each of the five elements as set forth by the Supreme Court, 67 Ohio St.3d at 88, 616 N.E.2d at 203, would still have to be established. As the district court noted on remand, plaintiff at most alleged negligence or malpractice,