Tuesday, July 14, 2009

Third Party Liability

The Wisconsin Supreme Court has held that a lawyer who had drafted a series of wills for his client that contravened a judgment in a prior divorce case may be liable to third party beneficiaries who did not benefit from the will to the extent ordered in the divorce case. The court rejected claims asserted by the lawyer of good faith and qualified immunity. The court affirmed the dismissal of related claims that were predicated on a theory of negligence. The key facts:

 Robert Tensfeldt and his first wife, Ruth, had three children——Christine, Robert William, and John. When Robert and Ruth divorced in 1974, they entered into an agreement stipulating to various terms of the divorce.  The divorce court determined that the stipulation was "fair and reasonable" and incorporated the stipulation into the divorce judgment.

One of the terms of the stipulation provides that Robert would make and maintain a will leaving two-thirds of his net estate to the children:

Will in Favor of Children: Simultaneously with the execution of this Stipulation, [Robert] shall execute and shall hereafter keep in effect, a Will leaving not less than two-thirds (2/3) of his net estate outright to the three adult children of the parties, or to their heirs by right of representation.  Except as herein provided, [Robert] shall have the right to make such disposition of his estate as he may desire, except as limited herein, and further, except as limited by the requirements set forth in [the provision dealing with unpaid alimony.]  As used herein, the term "net estate" shall mean [Robert's] gross estate passing under his Will (or otherwise, upon the occasion of his death), less funeral and burial expenses, administration fees and expenses, debts and claims against the estate, and Federal and State taxes.

Robert married his second wife, Constance, in 1975.  They remained married until Robert's death in 2000.  Robert and Constance had no children together, although Constance had three children from a previous marriage.  In 1978, Robert executed a will that was compliant with the stipulation and order——one-third of the net estate went to Constance, and two-thirds of the net estate went to his children or their issue. 

In 1980, Robert retained Attorney...to provide estate planning services.  It is undisputed that Robert made [the attorney] aware of his obligation to his children from the outset.  When Robert initially met with [him], he gave the attorney a copy of the divorce judgment and stipulation.  [The attorney] told Robert that he had three choices: comply with the stipulation; negotiate with the children to alter his obligation; or ignore the stipulation, knowing that the children might contest Robert's will upon his death.  Robert chose the third option, and in 1981, [the attorney] drafted an estate plan that did not leave two-thirds of the net estate outright to the Tensfeldt children.

After Robert executed the non-compliant estate plan, [the attorney] received a letter from Robert's divorce attorney, J.M. Slechta.  Attorney Slechta wrote:

Since you have drafted a will for Mr. Robert Tensfeldt of Oconomowoc, I recalled that in his divorce in 1974 in which proceedings I represented him, it was agreed in the Stipulation made part of the judgment, some restrictions on the disposition of his estate . . . .  Realizing this might have some effect upon the disposition which you have proposed I am enclosing a copy of such stipulation for your examination.  There does not seem to be any sanction against disposition of assets during his lifetime. 

[The attorney] wrote back:

Your letter . . . asks whether Mr. Tensfeldt's most recent Will . . . violates his obligations under that decree . . . .

In my opinion, Mr. Tensfeldt's present Will needs some revision in light of the obligations under the divorce decree, of which I was unaware until receipt of your letter.  On the other hand, the so-called "Economic Recovery Tax Act of 1981" does, as you know, offer significant new estate and gift tax advantages which may be available to Mr. Tensfeldt to some extent despite the decree.

Robert and [the attorney] never changed the estate plan to bring it into compliance with the divorce stipulation and judgment.  Even though Robert and Constance moved to Florida in 1985, they continued to retain the attorneys at [the attorney's firm] the planning.  Over the course of 12 years, [the attorney] drafted and executed a series of revisions to the plan for Robert, including  92 plan that was in effect when Robert died.  None of the revised plans left at least two-thirds of his net estate outright to the three adult children of his first marriage.

A concurring/dissenting opinion would hold:

I write separately for three reasons:  (1) I conclude that the plaintiffs' claim against [the attorney], based on aiding and abetting Robert in allegedly violating a provision of a 1974 divorce judgment that required him to will two-thirds of his net estate to his three adult children, fails to state a claim on which relief can be granted because the estate planning provision of the divorce judgment exceeded the circuit court's subject matter jurisdiction; (2) I conclude that [the attorney] was immune from liability in drafting Robert's 1992 will because [the attorney] proceeded in a good faith belief that the provision in the 1974 divorce judgment that required estate planning in favor of the adult children was void from its inception, as a judgment; and (3) I conclude that even if I were to assume, arguendo, that the directive to make a will in the 1974 divorce judgment were enforceable when made, Wis. Stat. § 893.40, a 20-year statute of repose, precluded actions on the divorce judgment after December 5, 1994.  Therefore, the divorce judgment had no effect, as a judgment, in 1999 when Robert reaffirmed the will that he made in 1992, and it had no effect at his death in 2000.  As a result, the aiding and abetting claim against [the attorney] must be dismissed.  Because the majority opinion concludes otherwise, I respectfully dissent from that portion of the majority opinion that addresses the aiding and abetting claim.

(Mike Frisch)

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