For Lawyers, Professor Sees Growth in Liability To Non-Clients

Once, lawyers didn’t have to worry about their liability to non-clients.

But nowadays, they have to be concerned about their potential liability to third parties in a variety of settings, law professor Jay M. Feinman, writes in his article, “Liability of Lawyers and Accountants to Non-Clients: Negligence and Negligent Misrepresentation,” published in April in the Rutgers University Law Review.

The problem is that the doctrines being applied in cases involving non-client liability vary widely, and court interpretation and application of such doctrines are even more diverse, Feinman writes. He doesn’t offer a solution in the article, but maps out relevant case law and aims to guide the analysis of legal professionals and the courts.

Negligence vs. Negligent Misrepresentation

According to Feinman, courts use a variety of doctrines to determine whether attorneys or accountants are liable to a non-client, with negligence and negligent misrepresentation being the most common.

Only a small number of jurisdictions still base their legal decisions on the rule that those professionals are not liable to a third party with whom they did not contract unless there is fraud or other intentional wrongdoing involved, he says.

Generally, to establish a cause of action for negligence, it must be shown that the professional owed a duty toward the non-client and that duty was breached, causing harm. In such cases, the courts consider a number of factors including the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm, the connection between the conduct at issue and any harm that occurred and the relationship between the parties, according to Feinman.

Negligent misrepresentation cases primarily involve the issuance of a formal opinion by an accountant certifying an audit or by an attorney, Feinman says. Negligent misrepresentation is the doctrine most commonly used in accountant liability cases and generally involves the issuance of a formal opinion, he writes.

Although in some cases, both negligence and negligent representation actions are available and each will lead to a different result, Feinman suggests in his article that there is no difference in those causes of action. “In cases in which either action may be available on the facts, the choice between them would vary greatly if a lawyer or accountant owed a duty under one cause of action, but not the other,” he says.

Main Issue is Determination of When Duty Owed

Under either cause, the underlying question is the determination of when a professional owes a duty to a third party, according to Feinman. “The answer to this question is conceptual, not doctrinal,” he writes, and is either based on a contractual approach or a relational approach.

According to Feinman, the contractual approach suggests that the lawyer or accountant’s role is focused on the client and limited with respect to third parties. “The client contracts for professional services to advance its own interests, and those interests largely define the scope of the professional’s liability,” he writes.

On the other hand, the relational approach stresses the varying degrees of dependence and obligations that arise in the legal realm, Feinman writes. Elements considered in such an approach are the extent to which non-clients depend on the actions of the accountant or lawyer, the level to which the professional’s responsibility is defined and the relationship between the interests of the client and third party, he says.

“The choice between these approaches determines how negligence, negligent misrepresentation, either, or both will be applied in a particular case and a class of cases, Feinman says. The decision “is ultimately a choice about on what basis the law should define the obligations professionals and others owe to each other in economic relations,” he writes.