The case of Chang v. Lederman (2009) 172 Cal. App. 4th 67, while dealing with the obligations of an estate planning lawyer to beneficiaries of the estate, may be of interest to participants in business transactions or business enterprises.
Raphael Schumert, a physician, and Myung Chang, a registered nurse, met while working at a hospital in 1994. They lived together for several years before marrying on August 27, 2004. In early 2004, approximately six months before his marriage to Chang, but while living with her, Schumert, who had been diagnosed with terminal cancer, retained Lederman, a probate attorney and estate planner, to prepare a revocable trust.
The Raphael Schumert 2004 Revocable Trust, executed on March 2, 2004, provided for two specific distributions upon Schumert’s death: $30,000, as well as the furniture and television sets located at Schumert’s principal place of residence in Sherman Oaks, to Chang; and $10,000 to Wenna Tancio. The residue of the trust estate (identified in an attachment to the trust instrument) was left to Schumert’s only child, Roy Schumert, in trust. The trust also provided that, following Schumert’s death, the Sherman Oaks residence was to be sold by his successor trustee or leased to a third party for a fair market rent. The trust specified “Chang must vacate [the Sherman Oaks residence] within thirty (30) days of my death.”
On April 15, 2004 Schumert executed a first amendment to the Raphael Schumert 2004 Revocable Trust, also prepared by Lederman (the attorney defendant). The amendment reduced the sum to be distributed to Chang from $30,000 to $15,000, eliminated entirely the distribution to Tancio and recited, “In all other respects, the trust remains unchanged.”
According to Chang’s pleading, on or about February 1, 2005, five to six months following their marriage, Schumert, who was now seriously ill, instructed Lederman to revise his trust to leave the entire trust estate to Chang (with the understanding Chang would give Roy Schumert the sum of $250,000 when he turned 25). Lederman refused and told Schumert, if he modified the trust, Schumert would be sued by Schumert’s ex-wife. Lederman also advised Schumert he should have a psychiatric evaluation before making any changes to his estate plan. Schumert died on March 17, 2005 without making any further amendments to the trust.
On March 16, 2006 Chang (who was ousted from the Sherman Oaks residence after Schumert’s death and who, of course, did not receive the $600,000 estate) filed a lawsuit against Lederman, asserting various causes of action, including professional negligence. The gravamen of Chang’s lawsuit was that Lederman, in his capacity as Schumert’s probate attorney, breached his legal duty of care owed to Chang, in her capacity as an intended third-party beneficiary of her husband’s will and trust, by refusing and failing to revise the trust and will to comply with Schumert’s expressly communicated intent to bequeath to her his entire estate located in the United States (valued, according to Chang, at more than $600,000). Chang expressly alleged that she was an intended beneficiary of the trust and that Lederman was retained by Schumert for the purpose of benefiting beneficiaries of the trust, including Chang.
The trial court ruled in favor of the attorney, and the court of appeal affirmed.
The appellate court noted that in Biakanja v. Irving (1958) 49 Cal.2d 647, the California Supreme Court held, notwithstanding the absence of privity, a notary public, engaging in the unauthorized practice of law, who drafted and supervised the execution of a will, owed a duty of care to the beneficiary who lost her inheritance due to his negligence.
The court also noted Lucas v. Hamm (1961) 56 Cal.2d 583, in which the California Supreme Court held beneficiaries whose bequests arguably failed because the testator’s lawyer did not adequately safeguard the will from challenge under the rule against perpetuities could assert a claim for professional negligence against the lawyer.
The court decided that, under Biakanja and Lucas and the appellate cases that explain and apply them, a testator’s lawyer does not owe a duty of care to a non-client who alleges she was a potential beneficiary of the testator’s estate unless there is an executed will or trust instrument expressly reflecting the testator’s intent. And the result is the same even if the non-client was in fact previously named in a will or trust instrument executed by the testator and the allegation is the testator intended to revise his or her estate plan to increase the gift to the beneficiary.
Obviously, the applicability of estate planning cases to business law transactions is limited, in part because in estate planning cases the original client is always dead.
But the issue of the responsibility of an attorney to other parties can apply to business transactions and business entities. For example, a party to a contract drafted by an attorney might think that the attorney is representing all the parties by drafting the contract, particularly if the attorney responds to comments from each party and even more so if one party is being reimbursed for part of the attorney’s fees. But the attorney may be representing only one of the parties.
In like vein, officers or shareholders of a corporation might think that the work done by the corporate attorney makes them the client of the attorney, but often that is not the case.
Therefore, participants in a business transaction or in a business enterprise that involves an attorney who have not directly hired the attorney should not assume that the attorney is representing all the participants, or even all the participants on the same side of a transaction.
In other words, ask!