As discussed previously on this blog, New Jersey law often precludes recovery by a non-client against an attorney. Aside from wills, courts have also created an exception when an attorney owed a duty to a non-client by virtue of being aware of something the non-client could not have found out. Davin, L.L.C. v. Daham v. Kress et al., 329 N.J. Super. 54 (NJ Super. App. 2000) is a case with a complex set of facts, and two legal malpractice actions. The attorneys being sued were Ahmad Daham's attorneys as well as the attorneys who represented Kress.
The case began when Davin L.L.C. attempted to eject Daham from a rented property. Daham rented the property from the Kresses. The lease was negotiated by an attorney representing Daham and was to last for 10 years. One of the paragraphs of the lease included a clause which contained a covenant of quite enjoyment meaning the occupancy would not be disturbed. Once the lease was signed, Daham began the process of converting the store into a bagel shop. The conversion cost a large amount of money, requiring numerous contractors to work on the premises. All work being done was visible by the public because of the large scale operation. The attorney for Daham never initiated a title search before agreeing to the lease. As a result, the defendants were unaware of a property dispute regarding this land tract, and were surprised by the foreclosure action initiated by Davin L.L.C.
Davin L.L.C. came to own the property after the Kresses had difficulty paying the mortgage, and were assigned the rights following a Sheriff's sale in 1996. While the Kresses were in the midst of fighting the initial foreclosure, their attorney wrote the lease for Daham. At the time the lease was written, he was aware the property was tied up in court proceedings because of the Kresses' financial problems. Neither he nor the Kresses advised Daham of the foreclosure proceeding, or the circumstances of the foreclosure. The Daham suit against their attorney and the Kress attorney were based on the bad lease, and the cover-up regarding the mortgage.
While much of the opinion discusses the foreclosure action, that is beyond the scope of the malpractice issue. The main thrust of the malpractice issue is that attorneys must perform due diligence in land deals, and also must follow rules of professional conduct in a way which does not harm others. The first malpractice case was against the Daham attorney. It was accompanied by an expert affidavit which stated an attorney should perform a title search in any commercial property transaction including leases. Thus, because the Daham attorney did not perform this title search, the affidavit believed there was a reasonable probability that the care, skill, or knowledge "exercised...and the work of the aforesaid attorneys fell outside the acceptable...standard." The Daham attorney also submitted a letter from a peer attorney which stated his actions were reasonable. Because, the court at first dismissed the action, the presence of 2 letters presented a material fact issue. The appeals court agreed to remand this issue so it would be heard again based on the factual dispute.
The Court noted that in counseling a client, attorneys must advise the client of all risks involved, so that the client may make an informed decision. The care an attorney exercises must be tailored to the needs of a specific client. An attorney is therefore required to exercise the degree of care that lawyers of ordinary skill possess and exercise. Where an attorney breaches this duty, he is answerable in damages for losses caused by the breach, including litigation costs, as Saffer v. Willoughby infra. made clear. The burden of proving this causal relationship is on the client.
The Court believed there was an issue concerning whether the Daham attorney was negligent in failing to complete a title search. If the attorney was negligent, then the court below would have to decide whether Daham suffered damages because of that negligence. This is a more straight forward approach to attorney malpractice, as opposed to the issue with the attorney whom Daham had not hired which is below.
The Kress attorney was also sued for malpractice by Daham, and the Court wrestled with the question of whether a duty was owed by the attorney to a non-client. This attorney's malpractice stemmed from the cover-up regarding the nature of the property. In weighing the issue of a duty, the court noted that Rule of Professional Conduct 1.3 requires an attorney to balance the duty to represent clients vigorously with the duty to refrain from knowingly making a false statement to a 3rd person. Thus, the Court reasoned, attorneys may owe a duty of care to non-clients in circumstances in which the attorneys know or should know that the non-client would be relying on the attorney's representations and there is a sufficient closeness in proximity, that the non-client be entitled to protection. The Court then used different examples of when attorneys have specific knowledge of facts which a non-client has relied upon, and found a duty existed between the non-client and attorney. The Court also weighed the fairness in the public in finding a duty in situations such as this.
In conclusion, the Court held that the attorney who fought off foreclosure for the Kresses had an affirmative obligation to be fair and candid with Daham. Additionally, he had an obligation to not insert the covenant of quiet enjoyment into the lease. He had a further obligation to advise his clients to disclose the fact that the property was in foreclosure to Daham. The attorney also had the duty to advise his clients that the covenant of quiet enjoyment could not be inserted into the lease, since Daham could not obtain the benefits of the clause due to the foreclosure. It is interesting to note that the Court mentioned in dicta that had the Kresses failed to follow the attorney's advisements, he had the right, and possibly the duty to withdraw from representation.
The withdrawal point is only brought up in passing. It is odd because typically, the situations in which attorney withdrawal is allowed are limited. For a court to carve one out without citing a specific rule of professional conduct is an interesting twist on the typical requirements of attorney ethics.
Based on the duty of effective and vigorous representation of a client, balanced against the corresponding duty to be fair, candid, and forthright, the Court found a duty existed between the non-client and the Kress attorney. This case is interesting because one person suffered legal malpractice twice. Based on this case, it is clear that an attorney not only has a duty to be diligent in working for a client, but must also be forthright with 3rd parties who may be affected by the work done on behalf of a client. It is unclear how far this duty to 3rd parties stretches, but the Court seemed to indicate that any time the attorney represents a party who has an information advantage, and the information is not disclosed, there may be a corresponding duty.