Thursday, February 9, 2017

Controversial Reprimand Proposed: Duty To Third Party Beneficiary At Issue

A recommendation for sanction by an Illinois Review Board is summarized in the headnote below.

The bar matter is unusual in that it raises a novel question of real consequence, namely whether the concept of third party beneficiary liability extends into an enforceable disciplinary obligation.

Respondent was charged in a one-count amended complaint with violating multiple Rules of Professional Conduct. The charged misconduct arose out of Respondent's drafting of a power of attorney and quitclaim deed at the request of a client. The client told Respondent that his friend, who was in the hospital, wanted to give the client his house and property, and asked Respondent to draft a power of attorney to enable the client to handle his friend's affairs. Without speaking to the client's friend or conducting any investigation of the friend's wishes or competency, Respondent drafted the documents requested by the client, who, using the documents, then withdrew all the money from his friend's bank account and took possession of his house.

Based on these events, the Administrator charged Respondent with failing to provide competent representation; failing to consult with a client concerning the objectives of the representation and means by which they are to be accomplished; failing to explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation; engaging in a conflict of interest; and permitting a person who employed and paid the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering the legal services, in violation of Rules 1.1, 1.2(a), 1.4(a)(2), 1.4(b), 1.7(a), and 5.4(c), respectively, of the 2010 Illinois Rules of Professional Conduct.

After a hearing, a majority of the hearing panel determined that Respondent owed no duties to the friend, and therefore could not be found to have committed the charged misconduct. It recommended that the amended complaint be dismissed. One hearing panel member dissented, finding that the friend was the intended third-party beneficiary of the attorney-client relationship and therefore that Respondent owed a duty to him, and had engaged in misconduct by failing to meet that duty.

The Administrator filed exceptions, challenging the majority's finding of no misconduct and arguing that Respondent should be suspended for 90 days for his misconduct.

A majority of the Review Board panel reversed the Hearing Board's finding of no misconduct. The majority found that the friend was an intended beneficiary of the attorney-client relationship between Respondent and his client, and therefore that Respondent owed a duty to the friend but failed to meet it. For his misconduct, the majority recommended that Respondent be reprimanded and required to complete the ARDC Professionalism seminar.

One member of the review panel dissented, agreeing with the hearing panel majority that the friend was not a third-party beneficiary of the relationship between Respondent and his client and therefore that Respondent owed no duty to the friend.

The dissent of Robert Henderson

As the hearing panel majority recognized, Respondent did nothing but prepare a document according to a statutorily-defined format. There is no suggestion that the document was prepared carelessly or inaccurately. The service Respondent provided his client was simply the preparation and delivery of a document that was not executed in Respondent's presence and might not have been executed for week, months, years, or ever.

I believe my colleagues' opinion will have negative and far-reaching ramifications beyond this matter. If a client asks a lawyer to prepare a power of attorney for the client's mother or father, must the lawyer investigate and determine whether the client's parent is competent to give power of attorney? When asked to prepare a power of attorney, must a lawyer anticipate all potential problems that could arise before preparing the power of attorney? Are we requiring a lawyer to both predict and prevent fault, even criminal conduct, by the client? Must the lawyer continually monitor to see that the third party is competent at some undetermined future date when the power of attorney is executed? Must the lawyer convince caregivers to provide information about the health of the third party without any evidence of the relationship between the lawyer and the third party? Under my colleagues' reasoning, the answer to these questions would be yes. The duties placed on lawyers by the majority's opinion are onerous and unreasonable.

I also am concerned that the majority's ruling will spell the end of affordable powers of attorney, and possibly even lawyer-prepared powers of attorney. Lawyers will be loath to take on potential liability if they are held responsible for their clients' actions. In this same vein, I believe the majority's opinion will establish an unreasonably high standard of practice that will be used in malpractice litigation.

Finally, I believe the majority's opinion creates an inherent conflict of interest. Under the majority's reasoning, a lawyer asked by a client to prepare a power of attorney on behalf of a third party must investigate his client's motives, inquire into the relationship between the client and third party, and determine the competency and wishes of the third party. Thus, the lawyer is essentially the servant of two masters - the client and the third party. To the extent the client's and the third party's interests diverge, or may later diverge at the time of execution, the lawyer is placed in a quandary and, more important, a conflict of interest. In fact, the majority found that Respondent engaged in a conflict of interest in this matter. I submit that, under the majority's analysis, a conflict will exist any time a lawyer is preparing a power of attorney form at the request of the person being given the power of attorney by another.

This is clearly a case in which the client, Mr. Zabielski, was guilty of very bad acts causing great harm to the third party, Mr. Muskala. But the magnitude of this harm should not serve to impose an onerous duty on attorneys who themselves have acted in good faith.

For these reasons, I would uphold the Hearing Board's finding of no misconduct and dismiss the complaint against Respondent.

My understanding is that the Illinois Supreme Court rarely issues written opinions. Rather, the court regularly enters orders either agreeing or not with the proposed disposition.

It will be interesting to see where this goes.

Note that My Shingle has some strong views on this case. (Mike Frisch)

Bar Discipline & Process | Permalink


I disagree with the dissenting opinion. First, the rule in Illinois is that lawyers owe duties to the beneficiaries of the documents and, second, the dissenter is wrong in saying that the attorney is being held liable for the conduct of the client. The lawyers is being held responsible for his own conduct.

Posted by: Alberto Bernabe | Feb 12, 2017 4:13:39 PM

Consider this comparison as a way to think about another perspective on this case.

Imagine a bank and trust company is in the business of serving in fiduciary positions, including trusteeships, conservatorships, and even before-incapacity agencies. The bank is small enough, and its fiduciary positions few enough, that the bank uses outside counsel to advise the bank about fiduciary appointments and responsibilities. The bank’s business practice is never to accept an agency of a natural person unless the power-of-attorney document is one the bank’s counsel drafted. The bank’s concern is not about the maker’s interests; it’s about setting the terms of the agency so it will be efficient and profitable to administer, and will provide the maximum feasible protections against, and relief from, liability, all in the bank’s interests. The bank’s officer calls the bank’s lawyer and instructs her to draw such a power-of-attorney document, and furnishes only as much information about the potential maker as needed to put his name and address in the document. Must the lawyer who works for the bank that might serve as an agent consider the interests of the person who might make the document?

Now imagine the lawyer described in the report was a little more careful than the report suggests he was. Suppose he had written an engagement letter that specifies (i) only the person who paid him is his client; (ii) purpose of the engagement is drafting a power-of-attorney to set the terms under which his client might be willing to serve as an agent, protecting the client’s interests if he serves; and (iii) neither the lawyer nor his client intends any third person to benefit from the lawyer’s advice or services. Suppose further the lawyer obtained his client’s signature, assenting to those terms. Assuming this scope of the engagement, must the lawyer who works for the person who might serve as an agent consider the interests of the person who might make the document?

Posted by: Peter Gulia | Feb 14, 2017 9:07:20 AM

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