As noted above, two principal opinions dealing with attorney liability to a nonclient premised on the privity exception are Elam v. Hyatt Legal Servs., 44 Ohio St.3d 175, 541 N.E.2d 616 (1989) (estates and trusts), and Arpadi v. First MSP Corp., 68 Ohio St.3d 453, 628 N.E.2d 1335 (1994) (limited partnerships).
In Elam, the Ohio Supreme Court held that “[a] beneficiary whose interest in an estate is vested is in privity with the fiduciary of the estate, and where such privity exists the attorney for the fiduciary is not immune from liability to the vested beneficiary for damages arising from the attorney’s negligent performance.” 44 Ohio St.3d 175, 175, 541 N.E.2d 616, 616-17 (syllabus) (summary judgment for attorneys reversed; after death of testator, counsel for executor caused real property to be transferred in fee simple to executor, whereas under will executor was granted life estate only, with remainder to go to plaintiff/vested beneficiaries in fee simple). Based on the clearly vested interest of the
beneficiaries in the case before it, the Elam Court distinguished its earlier decision in Simon v.
Zipperstein, 32 Ohio St.3d 74, 512 N.E.2d 636 (1987) (per curiam), which had held that the attorney who prepared the testator’s will was immune from liability for malpractice in preparation of the will to a potential beneficiary of his father’s estate for want of privity. (Interestingly, Elam noted
“without comment” that review of the facts “seems to indicate that the person’s interest [in Simon]
was vested.” See 44 Ohio St.3d 175, 177 n.2, 541 N.E.2d 616, 618 n.2. But, in its most recent excursion into this territory, the Court in Shoemaker v. Gindlesberger, 118 Ohio St.3d 226, 2008 Ohio 2012, 887 N.E.2d 1167, used the Zipperstein potential beneficiary rationale to explain why the beneficiaries in that case were not in privity – because “their rights as beneficiaries did not vest until [their mother’s] death.” Id. at para. 10.) See also DePugh v. Sladoje, 111 Ohio App.3d 675, 676 N.E.2d 1231 (Miami 1996) (holding rationale of Elam to be equally persuasive on mirror-image facts presented; administrator of estate was in privity with beneficiary and therefore had standing to sue beneficiary’s attorney for malpractice).
In Arpadi v. First MSP Corp., 68 Ohio St.3d 453, 628 N.E.2d 1335 (1994), the Ohio Supreme Court held that attorneys for a limited partnership and its general partner owe a duty of due care arising from the attorney-client relationship to limited partners regarding matters to which the fiduciary duty relates. The Court first rejected the defendant attorneys’ argument that former OH EC 5-18 (subsequently renumbered 5-19) supported the view that no duty is owed to limited partners by the attorney for the partnership; the Court found this provision inapposite because, unlike a
corporation, a partnership is an aggregate of individuals and does not constitute a separate legal entity.
The Arpadi decision was based on the premise that the general partner of a limited partnership owes a fiduciary duty to the limited partners, 68 Ohio St.3d at 454, 628 N.E.2d at 1336 (syllabus two), and that “the fiduciary relationship between the general partner and the limited partners provides the requisite element of privity under Elam, supra. Such privity, in turn, extends the duty [of care] owed [by the attorney] to the general partner to the limited partners regarding matters of concern to the enterprise.” 68 Ohio St.3d at 458, 628 N.E.2d at 1339 (bracketed material added).
One aspect of the holding in Arpadi, however, was not expressly limited to partnership law. In syllabus three, the Court stated the rule in terms applicable to fiduciaries generally:
Those persons to whom a fiduciary duty is owed are in privity with the fiduciary such that an attorney-client relationship established with the fiduciary extends to those in privity therewith regarding matters to which the fiduciary duty relates. (Elam approved and followed.)
Id. at 454, 628 N.E.2d at 1336 (syllabus three). This extension of the attorney-client relationship and its related duties caused concern in the estate and trust legal community and led to the enactment of ORC 1339.18 and the adoption of former OH EC 5-16, discussed this section below at “The ‘duty’
issue.” See Sidney Nudelman, Adoption of a New Ethical Consideration Relating to Lawyer’s Representation of a Trustee of an Express Trust, Executor, Administrator or Personal
Representative, Prob. L.J. of Ohio, Nov.-Dec. 1999, at 17 (discussing adoption of former OH EC 5-16 as resolving some of the concerns of estate and trust practitioners raised by Arpadi); Robert G.
Dykes, Scope of Lawyer’s Duty in Estates and Trusts Clarified, Prob. L.J. of Ohio, Jan.-Feb.
1999, at 44 (similar discussion regarding enactment of ORC 1339.18).
Arpadi is cited by the Restatement as being out of sync with the “apparent majority of recent
decisions” that, “[c]onsistent with the position of the Section and Comment [h],” hold “that a lawyer for a limited partnership does not owe a duty of care to partners.” 1 Restatement (Third) of the Law Governing Lawyers § 51 reporter’s note to cmt. h, at 373 (2000). The same reporter’s note cites ORC 1339.18, but makes no mention of Elam.
Developments in Ohio subsequent to Elam and Arpadi: In response to the Court’s decisions in Arpadi and Elam, the legislature amended the Ohio Revised Code to make clear that a limited partnership was a legal entity, a position Arpadi had rejected, and enacted a new Code section providing that a lawyer for a fiduciary who is a trustee or an executor or administrator does not, absent express agreement to the contrary, owe duties to those to whom the fiduciary owes fiduciary
obligations.
The “entity” issue: In 1996 the Ohio legislature amended ORC 1782.08(B) by adding the words “an entity” to the then-existing language. Pursuant to subsequent amendment (adding a new subpart B), the relevant language is now contained in ORC 1782.08(C) and reads as follows:
A limited partnership is an entity formed at the time of filing the certificate of limited partnership pursuant to section 1782.13 of the Revised Code [ORC 1782.13] or at any later time specified in the certificate if, in either case, there has been substantial compliance with the requirements of divisions (A) and (B) of this section [ORC
1782.08(A)-(B), setting forth requisites of limited partnership formation].
(Emphasis and bracketed material added.)
In comments on Substitute House Bill 495, which as enacted into law (146 Ohio Laws 5359) included the 1996 amendment to ORC 1782.08(B), the Corporation Law Committee of the Ohio State Bar Association stated that “[t]o the extent that the decision in Arpadi v. First MSP Corp., 68 Ohio St.3d 453 (1994) was based on the court’s conclusion that the limited partnership was not an entity, the result in that case would now be different.”
Since the effective date of the amendment to ORC 1782.08(B), a number of cases have continued to cite Arpadi as good law on the entity issue. Until 2009 (see the Fornshell decision, discussed below), no case had cited ORC 1782.08(B) or (C) or indicated that Arpadi’s holding that a limited
partnership is not an entity is no longer the law of Ohio. In a word, Ohio decisions ignored the statute.
E.g., Geren v. Westfield Ins. Co., 2002 Ohio 1230, 2002 Ohio App. LEXIS 969 (Lucas, Mar. 8, 2002); Sekulovski v. Bubev, No. 99 AP-1224, 2000 Ohio App. LEXIS 3553 (Franklin Aug. 8, 2000). Federal cases applying Ohio law have done likewise. See, e.g., Thompson v. Karr, 182 F.3d 918, 1999 U.S. App. LEXIS 16846 (6th Cir. 1999) (table); Supremacy Capital Co. v. Tri-Med Fin. Co., 165 F. Supp.2d 679 (S.D. Ohio 2001).
Further evidence that Arpadi should no longer be read as stating the law of Ohio on the entity issue is found in Ohio Rule 1.13 cmt. [1], which expressly states that “[t]he duties defined in this rule [with respect to an organization as client] apply equally to unincorporated associations.” Since partnerships and limited partnerships are by definition unincorporated associations, a lawyer for such an
association, under 1.13(a), represents the partnership, i.e., the entity, not the individual partners. See further discussion at sections 1.7:340 and 1.13:230.
Yet another effort by the legislature to make clear that general and limited partnerships are “entities”
was found in the enactment of ORC 1775.01(G), effective October 12, 2006. This provision once again expressly stated that “entity” means “[a]ny of the following organizations . . . [a]n
unincorporated business or for profit organization, including a general or limited partnership.” ORC 1775.01(G)(2)(d). The provisions of Ch 1775 were repealed and replaced by Ch 1776, effective January 1, 2010. The identical language quoted above is now found in ORC 1776.01(G)(2)(d). See also ORC 1776.21(A), which states that a “partnership is an entity distinct from its partners.”
Finally, in Fornshell v. Roetzel & Andress, 2009 Ohio 2728, 2009 Ohio App. LEXIS 2265 (Cuyahoga), the Eighth District Court of Appeals, per Judge Dyke, saw the light and cited ORC 1782.01(C) and 1782.08 in ruling that limited liability companies (the organization there at issue) as well as limited partnerships such as that in Arpadi, are “entities.”
More recently, the Franklin County Court of Common Pleas recognized the statutory “entity” rule in Buckingham, Doolittle & Burroughs, L.L.P. v. Bonasera, 157 Ohio Misc.2d 1, 2010 Ohio 1677, 926 N.E.2d 375 (C.P. Franklin). Despite acknowledging the entity rule, however, the court went on to state (in an intra-law firm dispute involving the departure of an entire branch office, in which the parent firm made claims of breach of fiduciary duty) that even though Buckingham is a distinct entity
that does not also mean that individual members of the board of managers owed duties only to the partnership entity and could ignore the corporate partners and their shareholders [the lawyers] in this interlocking business arrangement. As explained above, fiduciary-duty law is not so rigid.
Id. at para 37. As a result, the court denied a motion by members of the board of managers of the overarching law firm entity for judgment on the pleadings on the migratory lawyers’ counterclaim for alleged breach of fiduciary duty by the board. (The court also denied the migratory lawyers’ motion for summary judgment on all of the firm’s claims.)
The “duty” issue: In December 1998 the Ohio legislature enacted ORC 1339.18 (effective March 22, 1999; renumbered ORC 5815.16, effective January 1, 2007), which would appear to have repudiated Elam and an unlimited reading of syllabus three of Arpadi. The section reads as follows:
(A) Absent an express agreement to the contrary, an attorney who performs legal services for a fiduciary, by reason of the attorney performing those legal services for the fiduciary, has no duty or obligation in contract, tort, or otherwise to any third party to whom the fiduciary owes fiduciary obligations.
(B) As used in this section, “fiduciary” means a trustee under an express trust or an executor or administrator of a decedent’s estate.
(At about this same time, an ethical consideration, designed to deal with the perceived problem of conflicting multiple representation raised by the language in syllabus three of Arpadi extending the fiduciary’s attorney-client relationship to those in privity with the fiduciary, was adopted by the Ohio Supreme Court, effective November 1, 1999. See former OH EC 5-16, which stated that a lawyer representing a fiduciary having fiduciary duties to third parties was not engaged in multiple representation, even if the fiduciary and the third parties had conflicting interests. As used in the ethical consideration, “fiduciary” included only a trustee under an express trust or an executor, administrator, or personal representative.”)
A further attempt by the General Assembly to repudiate an unrestricted reading of Arpadi syllabus three occurred with the passage of Am. Sub. H.B. 301, effective October 12, 2006. See ORC 1701.921(A) (corporations); 1705.61(A) (limited liability companies); 1782.65(A) (limited
partnerships). As to each of these entities, the relevant statutory language is that “[a]bsent an express agreement to the contrary,” a lawyer “performing services for” the entity
owes no duty to, incurs no liability or obligation to, and is not in privity with the [constituents or creditors of the entity] by reason of
performing services for the [entity].
Each of these provisions also has a subsection (B), which states the identical restrictions on duty, liability, privity, etc., regarding a lawyer performing services for the entity’s constituents. Since Arpadi was a limited partnership case and since each of the provisions is identical in structure, we will quote only 1782.65(B) here. It states in relevant part:
Absent an express agreement to the contrary, a person . . . performing services for a general or limited partner or a group of general or limited partners of a limited domestic or foreign limited partnership owes no duty to, incurs no liability or obligation to, and is not in privity with the limited partnership, any other general or limited partners of the limited partnership, or the creditors of the limited partnership by reason of . . . performing services for the general or limited partner or group of general or limited partners.
This language in 1782.65(A) & (B) seems to directly repudiate the core holding in Arpadi that the
lawyer for the general partner and the limited partnership can be liable or has a duty of care to the limited partners, even though the lawyer was not representing them. (This limitation of liability, at least with respect to corporations and limited liability companies and their constituents, is noted in Gary P. Krieder & F. Mark Reuter, Significant 2006 Amendments to Ohio Business
Organization Statutes, Ohio Law., Jan./Feb. 2007, at 30, 31-32; no mention is made of the Arpadi conundrum.)
Once again, the Fornshell case comes to the rescue and cites ORC 1705.61 (the provision addressing limited liability companies) in support of its ruling that the defendant law firm, representing the limited liability company, owed no duty to the minority owner of the company or the minority owner’s manager. In doing so, it found Arpadi’s rule that the limited partnership’s attorney was in privity with the owners of the partnership and therefore owed them a duty had “essentially been abrogated” by the statutory changes. See 2009 Ohio 2728, at paras. 53-59.
While to our knowledge the 2006 amendments to the Revised Code have not yet generated any case law other than Fornshell, one would have expected otherwise for the comparable provisions adopted in 1999. Nevertheless, with one exception (discussed in the last paragraph of this subsection), no case has cited ORC 1339.18 or OH EC 5-16; instead, they continue to cite Elam and Arpadi as good law on the duty point. See, e.g., Brinkman v. Doughty, 140 Ohio App.3d 494, 748 N.E.2d 116 (Clark 2000). In Brinkman, certain relatives of the deceased brought a malpractice action against the lawyers who had represented the executrix and who had pursued wrongful death claims. The wrongful death action was settled, but the Brinkman plaintiffs did not share in the proceeds. In the malpractice action, the trial court granted summary judgment for the defendant lawyers on the ground that plaintiffs were not in privity with the fiduciary for the estate, since their interests were potential only and not vested. The Second District Court of Appeals reversed. Relying on the Supreme Court’s decisions in Elam and Arpadi, the court held that the executrix owed a fiduciary duty to all statutory beneficiaries under the wrongful-death statute; that being so, plaintiffs were in privity with the executrix and could sue the lawyers for the executrix for malpractice, because the lawyer’s duty runs not only to the client but also to those to whom the client owed a fiduciary duty. ORC 1339.18 was not mentioned in the opinion. The Supreme Court denied review. 91 Ohio St.3d 1480, 744 N.E.2d 1194 (2001).
A more recent example, Wanamaker v. Davis, 2007 Ohio 4340, 2007 Ohio App. LEXIS 3878 (Greene), produced a similar result based on Elam. As in Brinkman, the Wanamaker court of appeals reversed summary judgment for the defendant lawyer; it reasoned as follows:
In the case at bar, the trial court found that appellant did not have standing to bring the estate’s malpractice claim because appellant was not the executrix at the time she filed the complaint. [The estate had previously been closed.] However, at that time, appellant was also the trustee of the Trust. It is undisputed that the Trust was the sole beneficiary of Mr. Casey’s will. Because the Trust is the beneficiary of the estate, and not a potential beneficiary, it has a vested interest in the estate. [Elam] at 177. Applying Elam here, we find that the Trust was in privity with appellant in her capacity as the executrix of the estate. Id.
at 176. It follows then that Davis [the lawyer] is not immune from
liability to the Trust, the vested beneficiary, for damages arising from his negligent performance. Id. at 177. We therefore find that as Trustee of the Trust, appellant had the authority to assert the estate’s legal malpractice claim.
Wanamaker, at para. 21 (emphasis by the court; bracketed material added). Again, ORC 1339.18, which would have called for the opposite result, was not mentioned. And again, the Supreme Court denied review. 116 Ohio St.3d 1477, 2008 Ohio 153, 879 N.E.2d 785.
Two other court of appeals decisions quote and apply Arpadi syllabus three on the privity/fiduciary duty/attorney-client relationship issue, LeRoy v. Allen, Yurasek & Merklin, 162 Ohio App.3d 155, 2005 Ohio 4452, 832 N.E.2d 1246 (Union); Euclid Retirement Village, Ltd. P’ship v. Giffin, 2002 Ohio 2710, 2002 Ohio App. Lexis 2788 (Cuyahoga), but neither run afoul of ORC 1339.18 or OH EC 5-16, since the fiduciaries in LeRoy and Euclid Village were, respectively, a majority shareholder and a limited partnership general partner, not a trustee of an express trust or an executor or administrator of a decedent’s estate. [But see new ORC 1701.921 and 1782.65, discussed above.]
A unanimous Supreme Court in LeRoy, however, in no uncertain terms reversed the court of appeals on the privity issue, 114 Ohio St.3d 323, 2007 Ohio 3608, 872 N.E.2d 254. Pursuant to the Court:
The major flaw in the court of appeals’ reasoning is that Arpadi found privity in a partnership situation specifically only as to “matters to which the fiduciary duty relates.” Arpadi, 68 Ohio St.3d at 458, 628 N.E.2d 1335. The claims of LeRoy and Miller, however, are not such claims. A private transfer of stock does not, in and of itself, implicate any fiduciary duty on the part of a majority shareholder toward minority shareholders.
The transfer of stock that LeRoy and Miller challenge in this case is fundamentally different from the legal work at issue in Arpadi, in which the alleged legal malpractice that occurred was for legal representation specifically done regarding partnership matters. The transfer of stock was a purely private matter, personal to Mary Elizabeth Behrens, and was not done on behalf of Marysville Newspapers. For that reason, the legal work done by defendants regarding that transfer does not implicate the fiduciary duties discussed in either Arpadi or Crosby, the privity exception of Simon is clearly inapplicable, and LeRoy and Miller failed to state a valid claim under that exception. We reverse the judgment of the court of appeals on this issue.
Id. at paras. 27-28.
Thus, Arpadi was of no help to the LeRoy plaintiffs because its privity rule is limited to “matters to which the fiduciary duty relates,” id. at para. 27, and the private transfer of stock at issue in LeRoy was not such a matter. Without a majority shareholder fiduciary duty to the minority shareholders relating to that transaction, the Court held that there was no privity between the majority and the
minority, and without privity, there was no duty of care on the part of the lawyers for the majority shareholder to the nonclient minority shareholders. (Presumably, pursuant to the LeRoy analysis, the Arpadi privity rule would still lie if the lawyer’s work is on a “matter[] to which the fiduciary duty relates.”)
(While it did not affect the result, it should be noted that the Court in LeRoy telescoped the Arpadi fiduciary duty/privity/duty-of-care analysis into one of fiduciary duty/privity only. Arpadi held that the general partner owes a fiduciary duty to the limited partners and “[a] fortiori [the limited partners]
are in privity with the fiduciary such that an attorney client relationship established with the fiduciary extends to those in privity therewith regarding matters to which the fiduciary duty relates.
Therefore, . . . the duty arising from the attorney-client relationship . . . must be viewed as extending to the limited partners as well.” 68 Ohio St.3d at 458, 628 N.E.2d at 1339 (emphasis added); accord syllabus three. In LeRoy, it was privity, not “the duty arising from the attorney-client relationship,”
that the Court held existed only as to “matters to which the fiduciary duty relates.” 114 Ohio St.3d 323, at para. 27.)
Having decided the privity issue on the ground that “the legal activities in this case were inherently not ‘matters to which the fiduciary duty relates,’” id. at para. 30, and that such a relationship is a
Having decided the privity issue on the ground that “the legal activities in this case were inherently not ‘matters to which the fiduciary duty relates,’” id. at para. 30, and that such a relationship is a