Shoemaker v. Gindlesberger

Lanzinger, J.

{¶ 1} This discretionary appeal invites us to review Simon v. Zipperstein (1987), 32 Ohio St.3d 74, 512 N.E.2d 636, which establishes that an attorney is not liable to third persons arising from his good-faith performance of acts on behalf of a client. For the reasons that follow, we decline the invitation to overrule Zipperstein and instead hold that a beneficiary of a decedent’s will may not maintain a negligence action against an attorney for the preparation of a deed that results in increased tax for the estate.

I. Case Background

{¶ 2} Margaret Schlegel, the decedent, was a client of attorney Thomas Gindlesberger, the appellee. In 1986, Gindlesberger prepared a will for her, and he later drafted two codicils. Her three children, Roy Schlegel, Robert Schlegel, and Anna Mae Shoemaker, were beneficiaries under the will. In 1990, Margaret, who owned two tracts of land, the “Hanna farm” and the “home place,” contacted Gindlesberger for assistance with the transfer of some property. Her son Roy was interested in expanding his dairy farm; to assist him, his mother wanted to convey most of the Hanna farm while retaining a life interest in the land. Gindlesberger drafted a general warranty deed that retained a life estate for Margaret and transferred a joint life estate to Roy and his wife, with a remainder over in fee simple to the survivor.

{¶ 3} Margaret Schlegel died in 2003. When her will was admitted to probate, the Schlegel children learned that estate assets would have to be sold to pay state and federal estate taxes owed on the transfer of the Hanna farm. The appellants, Robert Schlegel, as executor and as a beneficiary, and Anna Mae Shoemaker, as a beneficiary, argued that Gindlesberger was negligent in preparing the document for the transfer of the Hanna farm and in failing to advise their mother of the tax consequences of the transfer.

{¶ 4} The appellants filed a complaint against Gindlesberger alleging that he was negligent because his preparation of the document transferring the Hanna farm to their brother, Roy Schlegel, increased the estate’s tax liability. They also sued Roy for unjust enrichment, claiming that he had received the Hanna farm while the estate received the tax liability, which had depleted their inheritance. Because Roy received property and Robert and Anna Mae did not, the appellants complained that their mother’s intent to divide her assets evenly had been frustrated by Gindlesberger’s faulty advice.

{¶ 5} Roy Schlegel filed a cross-claim for negligence against Gindlesberger, asserting that Robert and Anna Mae’s lawsuit claiming depletion of their inheritance was caused by Gindlesberger’s lack of knowledge of tax law. Gindlesber-ger responded that because there was never an attorney-client relationship between the Schlegel children and himself, none of the children had standing to bring a claim of negligence. The trial court denied Roy Schlegel’s motion for summary judgment on the unjust-enrichment claim filed by the appellants, finding a genuine issue of material fact.¹ The trial court granted Gindlesberger’s motion for summary judgment, dismissing the negligence claims filed by the Schlegel children. In granting Gindlesberger’s motion, the court, citing Simon v. Zipperstein, 32 Ohio St.3d 74, 512 N.E.2d 636, held that there was “no evidence that an attorney-client relationship or sufficient privity with an attorney-client relationship, existed between Defendant Gindlesberger and the Plaintiffs Robert and Anna Mae Shoemaker, or Defendant Roy Schlegel.”

{¶ 6} On appeal, the appellants² claimed that the trial court erred in granting Gindlesberger’s motion for summary judgment, arguing that the general rule of privity applied by the trial court should be abandoned in favor of a rule that allows beneficiaries to sue an attorney who is negligent in creating an estate plan. The appellate court disagreed, holding that the only person having an attorney-client relationship with Gindlesberger was their deceased mother, Margaret.

{¶ 7} We accepted this case as a discretionary appeal. The appellants propose that a beneficiary of a decedent’s will may maintain an action against an attorney who is negligent in the creation of the estate plan even though the beneficiary is not in privity with the attorney’s client. Gindlesberger responds that the limited exception to the strict rule of privity, which imposes liability only if a lawyer acts fraudulently or maliciously, should not be expanded. We agree with Gindlesber-ger.

II. Legal Analysis

{¶ 8} To establish a cause of action for legal malpractice based on negligence, the following elements must be proved: (1) an attorney-client relationship, (2) professional duty arising from that relationship, (3) breach of that duty, (4) proximate cause, (5) and damages. Vahila v. Hall (1997), 77 Ohio St.3d 421, 427, 674 N.E.2d 1164; Krahn v. Kinney (1989), 43 Ohio St.3d 103, 105, 538 N.E.2d 1058. If a plaintiff fails to establish a genuine issue of material fact as to any of the elements, the defendant is entitled to summary judgment on a legal-malpractice claim.

{¶ 9} The appellants assert that because Gindlesberger improperly drafted the will and a deed that allowed Margaret Schlegel to retain an interest in the Hanna farm, they have suffered damages in the form of increased estate tax liabilities. But 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. Scholler v. Scholler (1984), 10 Ohio St.3d 98, 10 OBR 426, 462 N.E.2d 158, paragraph one of the syllabus. This rule is rooted in the attorney’s obligation to direct attention to the needs of the client, not to the needs of a third party not in privity with the client. Simon v. Zipperstein, 32 Ohio St.3d at 76, 512 N.E.2d 636.

{¶ 10} The Schlegel children all concede they had no attorney-client relationship with Gindlesberger and that they must, therefore, demonstrate privity with his client, Margaret Schlegel, or malice on the part of Gindlesberger. Black’s Law Dictionary defines privity as “[t]he connection or relationship between two parties, each having a legally recognized interest in the same subject matter.” (8th Ed.2004) 1237. In Zipperstein, 32 Ohio St.3d 74, 512 N.E.2d 636, this court addressed privity in a similar context. An attorney prepared a will for a client who had a son, and upon the father’s death, the son’s guardian filed suit against the attorney for legal malpractice in the drafting of the will. Id. at 74-75, 512 N.E.2d 636. The court held that the son’s guardian could not sue the attorney because the son did not have a vested interest in the estate and thus was not in privity with the client. Id. at 77, 512 N.E.2d 636. The 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. Margaret Schlegel retained the right to revoke or amend her will during her lifetime. For these reasons, the appellants do not have standing to file their negligence suit against Gindlesberger.

{¶ 11} The necessity for privity may be overridden if special circumstances such as “fraud, bad faith, collusion or other malicious conduct” are present. Zipperstein, 32 Ohio St.3d at 76, 512 N.E.2d 636. The appellants, however, did not plead fraud, bad faith, collusion, or malice.

{¶ 12} The appellants’ argument rests on two public-policy grounds. They advocate for a change in what some refer to as Ohio’s antiquated rule on privity, arguing that Ohio law should grant beneficiaries standing to sue an attorney who allegedly was negligent in providing services to a decedent. In support of their position, they present a survey of several jurisdictions that allow beneficiaries to bring malpractice claims. It is true that Ohio is in the minority of states retaining a strict privity rule, but Ohio was also in the minority of states when Zipperstein was decided over 20 years ago.

{¶ 13} Appellants’ second reason for asking for an exception to the privity rule is the need to have attorney accountability in the area of estate planning and wealth transfer. Because any mistakes that an attorney makes in drafting a will or giving advice about an estate plan generally do not arise until after the death of the client, the harm from an attorney’s errors will most likely befall the intended beneficiaries. The appellants argue 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. They argue, consequently, that they should be permitted to maintain a suit against an attorney who negligently drafts or supervises the preparation of a will, to hold the attorney accountable for negligence.

{¶ 14} Public policy justifies adherence to the privity rule, as stated by courts in jurisdictions that apply the strict privity requirement.³ Primarily, the rule is used to protect the attorney’s duty of loyalty and the attorney’s effective advocacy for the client. Lewis v. Star Bank, N.A., Butler Cty. (1993), 90 Ohio App.3d 709, 712-713, 630 N.E.2d 418. The strict privity rule ensures that attorneys may represent their clients without the threat of suit from third parties who may compromise that representation. Barcelo v. Elliott (Tex.1996), 923 S.W.2d 575, 578-579. Otherwise, an attorney’s preoccupation or concern with potential negligence claims by third parties might diminish the quality of legal services provided to the client if the attorney were to weigh the client’s interests against the possibility of third-party lawsuits. See Zipperstein, 32 Ohio St.3d at 76, 512 N.E.2d 636.

{¶ 15} Second, without the strict privity rule, the attorney could have conflicting duties and divided loyalties during the estate planning process. Third, there would be unlimited potential liability for the lawyer. See generally Sav. Bank v. Ward (1879), 100 U.S. 195, 203, 25 L.Ed. 621 (without privity of contract, “absurd consequences to which no limit can be seen” will ensue). In Ward, the United States Supreme Court, in its seminal case discussing privity, noted that “[t]he only safe rule is to confine the right to recover to those who enter into the contract; if we go one step beyond that, there is no reason why we should not go fifty.” Id. Rather than expose the lawyer to the 50, we conclude that lawyers should know in advance whom they are representing and what risks they are accepting.

{¶ 16} The comment to Ohio’s conflict-of-interest rule, Prof.Cond.R. 1.7, states: “The principles of loyalty and independent judgment are fundamental to the attorney-client relationship and underlie the conflict-of-interest provisions of these rules. Neither the lawyer’s personal interest, the interests of other clients, nor the desires of third persons should be permitted to dilute the lawyer’s loyalty to the client.” The rules of professional responsibility, therefore, also underscore the need to ensure that a lawyer is not liable to parties who are not in privity with the lawyer’s client.

{¶ 17} We decline the appellants’ invitation to relax our strict privity rule. Although the court of appeals commented that this rule does not allow a remedy for the wrong, that is not necessarily so. Other courts have suggested that a testator’s estate or a personal representative of the estate might stand in the shoes of the testator in an action for legal malpractice in order to meet the strict privity requirement. See Noble v. Bruce (1998), 349 Md. 730, 758-759, 709 A.2d 1264; Belt v. Oppenheimer, Blend, Harrison & Tate, Inc. (Tex.2006), 192 S.W.3d 780, 784. These cases have suggested that the claims should be brought in the name of the estate. See Nevin v. Union Trust Co. (Me.1999), 726 A.2d 694, 701 (holding that the better rule is to allow only personal representatives, not beneficiaries, to sue for estate planning malpractice, because what may be good for one beneficiary is not necessarily good for the estate as a whole). This may well be a solution to the problem, but it is a question for another day.

{¶ 18} While recognizing that public-policy reasons exist on both sides of the issue, we conclude that the bright-line rule of privity remains beneficial. The rule provides for certainty in estate planning and preserves an attorney’s loyalty to the client. In this case, for example, Gindlesberger maintains that he did exactly what Margaret Schlegel wished. She wished to transfer the Hanna farm but also wanted to retain a life estate. The deed Gindlesberger prepared accomplished just that. Moreover, appellants’ claim is that the deed and the will drafted by Gindlesberger created a tax liability for the estate that depleted its assets. It is conceivable that a testator may not wish to optimize tax liability, instead seeking to further a different goal. In those instances, what is good for one beneficiary may not be good for another beneficiary, or for the estate as a whole. In 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 Hanna farm, not from the decedent’s will.

{¶ 19} A holding that attorneys have a duty to beneficiaries of a will separate from their duty to the decedent who executed the will could lead to significant difficulty and uncertainty, a breach in confidentiality, and divided loyalties. See Nevin, 726 A.2d at 701.

III. Conclusion

{¶ 20} To overrule Zipperstein and develop a new rule relaxing the well-established privity requirement would require an overruling of a precedent based solely on public policy. We decline to change the rule of law in this state that bars an action for negligence against a lawyer by a plaintiff who is not in privity with the client.

{¶21} We therefore hold that a beneficiary of a decedent’s will may not maintain a negligence action against an attorney for the preparation of a deed that results in increased tax liability for the estate.

{¶ 22} Therefore, we affirm the judgment of the Court of Appeals for Holmes County.

Judgment affirmed.

O’Connor, O’Donnell, and Cupp, JJ., concur. Moyer, C.J., and Pfeifer and Lundberg Stratton, JJ., concur separately.

1 . That claim is stayed pending the resolution of this appeal.

2 . In the years since the trial court action, Robert Schlegel has died, and the appellants, who have been substituted as parties, are Anna Mae Shoemaker, as executor of the estate and in her own right, and Ñola M. Schlegel, executor of Robert Schlegel’s estate.

3 . Robinson v. Benton (Ala.2002), 842 So.2d 631, 637; McDonald v. Pettus (1999), 337 Ark. 265, 275, 988 S.W.2d 9; Nevin v. Union Trust Co. (Me.1999), 726 A2d 694, 701; Noble v. Bruce (1998), 349 Md. 730, 757-758, 709 A.2d 1264; Belt v. Oppenheimer, Blend, Harrison & Tate, Inc. (Tex.2006), 192 S.W.3d 780, 783.