Privity Still Required

The Maryland Supreme Court has upheld the "strict privity rule" in legal malpractice cases

In this legal malpractice case by the beneficiary of an inter vivos trust against the drafting attorney, we are mainly asked to abandon or relax the rule—known as the “strict privity rule”—under which “a third party not in privity with an attorney has no cause of action against the attorney for negligence in the absence of fraud or collusion.” Noble v. Bruce, 349 Md. 730, 738 (1998). Alternatively, the beneficiary asks us to hold that she can proceed against the attorney on a third-party beneficiary theory. As explained below, we hold that the strict privity rule under Noble is still good law and that, on the undisputedfacts, the beneficiary does not have a claim against the attorney as a third-party beneficiary.

The representation

In 2015, Madelyn Bennett’s mother, Pauline Bennett, age 91, retained Respondent Thomas Gentile, Esquire, to prepare her estate planning documents. Mr. Gentile prepared a trust instrument memorializing the terms of the Pauline A. Bennett Revocable Living Trust (“Trust”), which Pauline executed on October 30, 2015 (“2015 Instrument”). Pauline wore three hats under the 2015 Instrument: “Settlor,” “Trustee,” and “Beneficiary.” The 2015 Instrument was broken down into nine sections, each with one or more subsections.

A second document was prepared by the attorney in 2017

But the 2017 Instrument also made some significant changes. Subsection 1.02 was changed to acknowledge that Pauline had transferred the property as contemplated in the prior version, and it retained the provision stating that she “agree[s] to hold any such property, IN TRUST, on the terms set forth in this instrument.” Also, by that time, [Pauline's son] Matthew had died, so the provisions addressing Fillmore and its contents were modified to replace Matthew with Pauline’s grandson, Jonathan. Audrey was added as a Successor Trustee to serve jointly with Madelyn.

At issue was the inheritance of property located at 4715 Wissahican Avenue in Rockville (“Wissahican”)

Perils of Pauline

In 2019, while temporarily living in a nursing facility, Pauline learned that [Madelyn's  daughter] Audrey had withdrawn money from Pauline’s bank accounts, used Pauline’s credit cards without authorization, and mismanaged Pauline’s money. In November 2019, Pauline expressed these concerns and others to Mr. Gentile, including her fear that she lacked sufficient funds to pay for home nursing care. She told Mr. Gentile that she needed to sell Wissahican to pay for that care. Recall that under subsection 2.01, as Trustee, Pauline was required to “utilize” Wissahican “for the benefit” of Audrey, so an amendment to the 2017 Instrument would be required to use that property for her benefit, that is, to sell Wissahican and use the proceeds for her own needs. Pauline asked Mr. Gentile to adjust her estate planning documents accordingly and told Mr. Gentile “don’t put anything about [Wissahican] going to Audrey.”

Mr. Gentile prepared a new trust instrument called the “Amended Revised Pauline A. Bennett Revocable Living Trust,” which Pauline signed on November 20, 2019 (“2019 Instrument”). This version contained the same nine sections as the two previous ones, again with most of the provisions unchanged. Subsection 2.01 was amended by removing the clause that required Pauline to use Wissahican for Audrey’s benefit.

In addition, subsection 3.01 was changed substantially. The provision in subsection 3.01 calling for Audrey to receive Wissahican upon Pauline’s death was removed.

As is invariably the next event in a probate dispute

Pauline died on December 31, 2019, and Madelyn became the Successor Trustee of the Trust. A dispute arose between Madelyn and Audrey over the ownership of Wissahican. Audrey believed she was entitled to Wissahican due to a deed, signed by Pauline in November 2019, that would have transferred Wissahican to Audrey. After Pauline executed the deed, and due to her concerns about Audrey’s conduct, Pauline instructed Mr. Gentile not to deliver it to Audrey, and the deed was never delivered or recorded. In January 2020, Audrey’s counsel asked Mr. Gentile to record the deed or deliver it to Audrey, but Mr. Gentile refused.

Madelyn sued Audrey and lost

The circuit court resolved the first question in Audrey’s favor on summary judgment. Construing the terms of the 2017 Instrument and 2019 Instrument, the court held that the provisions regarding Wissahican in the former were untouched by the latter, which meant that the disposition of Wissahican was governed by the 2017 Instrument—so the property went to Audrey.

Then sued the attorney

Now to the claims that bring this matter before us. Having lost the battle over Wissahican to Audrey, Madelyn pursued her claims against Mr. Gentile. Madelyn argued that Pauline intended that Wissahican or any remaining proceeds from its sale would, along with all other Trust property, go to her upon her mother’s death. She alleged that but for Mr. Gentile’s negligent drafting of the 2019 Instrument, Wissahican or its sales proceeds would have been distributed to her upon Pauline’s death. She argued that Mr. Gentile admitted under oath that he had made a drafting mistake by failing to specifically provide for the transfer of Wissahican or its sales proceeds to Madelyn in the 2019 Instrument. To substantiate her claim of negligent drafting, Madelyn relied on the circuit court’s determination, confirmed by the en banc panel, that the provisions of the 2017 Instrument regarding Wissahican remained in effect when Pauline signed the 2019 Instrument.

The case was thrown out on summary judgment; hence this appeal and invitation to overturn existing law

Madelyn urges this Court to overturn Noble and abolish the strict privity requirement for legal malpractice claims involving the negligent drafting of estate documents or negligent estate planning advice. She argues that beneficiaries should not be denied a remedy for injuries proximately caused by the negligence of the attorney who drafted the estate planning documents or rendered negligent advice to the attorney’s now-deceased client. Madelyn also points to the modern trend of abandoning or relaxing the strict privity rule in this context. She notes that only a few states, other than Maryland, apply the strict privity rule in claims against the drafting attorney. She contends that six states and the District of Columbia allow disappointed beneficiaries to sue estate planning attorneys in tort actions despite a lack of privity.

The court concluded that stare decisis compelled the result

Having determined that the strict privity rule survives Madelyn’s challenge, we turn to the only exception recognized by this Court: the third-party beneficiary exception...

Accordingly, under Noble and Ferguson, a testamentary beneficiary is not automatically a third-party beneficiary of the attorney-client relationship. To claim thirdparty beneficiary status, the beneficiary will have to allege and then prove, as the Court said in Flaherty, “that the intent of the client to benefit the non-client was a direct purpose of the transaction or relationship.” 303 Md. at 130-31.

Result

We conclude that the circuit court was correct in granting summary judgment for Mr. Gentile on whether Madelyn was an intended third-party beneficiary of Pauline’s and Mr. Gentile’s attorney-client relationship. The material facts, which were not genuinely disputed, showed that Pauline’s primary intent in revising the Trust in 2019 was to ensure that she had enough money to fund her care and to ensure that Audrey received none of the Trust property. That is not to say Pauline did not want Madelyn to reap a benefit if the sales proceeds she had anticipated from Wissahican’s sale were not depleted by the time she died. But, as the circuit court observed, “Pauline’s direction that Madelyn, her only other living child, receive ‘anything left’ was [nothing] more than incidental to removing Audrey as beneficiary.” The circuit court did not err in granting summary judgment on that basis.

Oral argument linked here. (Mike Frisch)