Duty to the Client

Duty to the Client

A malpractice plaintiff must show that the lawyer owed that plaintiff a duty of care before anyone asks whether the work fell short or whether the shortfall caused a loss. Duty is the gate to the rest of the claim, and a fact pattern that leaves the lawyer-client relationship in doubt is testing it. The first subsection below explains why a client's financial interest in competent representation is one the law protects and how the relationship forms, with or without a signed engagement letter. The second asks who counts as the client when an organization, a fee payor, or an insurer is involved, since the client is the person who holds the claim.

Protected Interest and Relationship

Restatement (Second) of Torts § 281(a) opens the list of conditions for negligence liability by requiring that the interest invaded be protected against unintentional invasion.¹ The requirement filters claims, because tort law does not guard every interest against careless harm, and a plaintiff with no protected interest has no negligence claim however careless the defendant was. In legal malpractice the interest is the client's economic stake in competent representation: the claim, the fund, or the deal the client placed in the lawyer's hands. Malpractice is therefore ordinarily an economic tort, one that causes financial harm without personal injury or property damage.²

Purely financial harm is the kind of loss negligence law is slowest to compensate, and the economic loss rule is the usual label for that reluctance. An exception applies where the defendant owes the plaintiff a duty of care because of an undertaking or a special relationship, and legal malpractice is the standard example.³ Given the client-lawyer relationship, the economic loss rule does not eliminate liability for negligence.⁴ The undertaking explains the exception. The lawyer knows whose money or rights are at stake and has agreed to guard them, so the loss falls on one identified person who engaged the lawyer to prevent that very loss.

The protected interest and the relationship are therefore a single inquiry, because the relationship is what turns a financial expectation into a protected one. Without a client-lawyer relationship there is rarely a duty, and without a duty there is no malpractice liability.⁵

Most relationships begin by express agreement, and a signed retainer leaves no doubt that the lawyer owes care in the work it covers. A relationship may also arise by implication, and that is where the existence of a duty becomes a live issue.⁶ An implied relationship forms when a person manifests to the lawyer an authorization to act and the lawyer manifests acceptance. The lawyer can accept expressly, or by staying silent when the lawyer knows or reasonably should know that the would-be client is reasonably relying on the lawyer for legal services.⁷ Courts are in effect looking for an implied contract to perform legal work. Because the test turns on reliance, neither payment of a fee nor a signed retainer is necessary, although both are relevant evidence.⁸ An exam stem that stresses that no fee was charged and nothing was signed therefore leaves the central question open: was the person's reliance reasonable, and did the lawyer know or have reason to know of it?

Each half of that test protects a different party. If a retainer and a fee were required, a lawyer could give advice, invite the listener to act on it, and escape every duty by skipping the formalities, leaving the person who relied without a remedy for the very carelessness the duty exists to deter. The reasonableness requirement, together with the lawyer's knowledge of the reliance, protects the lawyer: a stranger's private assumption cannot make a lawyer a guarantor, and a lawyer who wants to avoid a duty can decline the matter or disclaim representation clearly before the person relies. The first half gives the client a remedy when the lawyer's conduct invited reliance, and the second gives the lawyer a way out that lies within the lawyer's own control.

In Togstad v. Vesely, Otto, Miller & Keefe a person consulted a lawyer for about 45 minutes about a possible medical malpractice claim, and the lawyer said he saw no viable claim but would consult his partner.⁹ The lawyer never followed up, and the limitations period ran. The court treated seeking and receiving legal advice, in circumstances where a reasonable person would rely on it, as enough to create the relationship without any retainer or fee.¹⁰ A person told that the claim looks weak, and that the lawyer will check with a partner, has every reason to wait rather than seek a second opinion, so the reliance was both foreseeable to the lawyer and reasonable.

Reliance counts only when it is reasonable. Many courts hold that neither a unilateral belief nor an unreasonable belief on the putative client's part that the lawyer is representing the person will suffice, and many look for some concrete communication in which the person asked the lawyer to take the matter.¹¹

A social setting tempts students to assume that casual talk cannot create a duty, and the next pair of remarks shows why that assumption fails.

The setting decides neither case. What matters is what each exchange communicated: general information volunteered to a listener who asks for nothing invites no reliance, while a request for help met with a promise to act invites exactly the reliance the duty protects.

The existence of a duty is a question of law for the court, but many courts leave contested facts about an implied relationship to the jury, so a lawyer facing conflicting accounts of what was said often cannot win on summary judgment.¹² The reasonableness of reliance depends on words and context that the two sides remember differently, and resolving that conflict is the jury's task. Togstad shows the point: whether an attorney-client relationship exists can be a question of fact.¹³ If the jury finds no relationship, the lawyer owes the person no duty of reasonable care, with two narrow exceptions. The first covers a lawyer who invites a nonclient to rely on the lawyer's opinion or provision of legal services, and the second covers the intended beneficiaries of the lawyer's service to a client.¹⁴

A duty can also exist before a relationship is complete. A prospective client, someone who has discussed the possibility of hiring the lawyer, is owed reasonable care to the extent the lawyer provides legal services during the preliminary discussion, under Restatement of the Law Governing Lawyers § 15(1).¹⁵ The lawyer's actual conduct measures that duty. A lawyer who spends a consultation analyzing a claim and advising on it has provided services and owes care for that advice, while a lawyer who only screens a message for a conflict has provided none.

Identifying the Client

Under MRPC 1.13(a), a lawyer employed or retained by an organization represents the organization, acting through its duly authorized constituents.¹⁹ The rule matters for malpractice because the duty of care runs to a client, so the identity of the client decides who holds the claim. Officers instruct the lawyer and receive the answers, but they speak as the entity's agents, and the client is the entity itself.²⁰ The entity may therefore sue its lawyer for malpractice. Its CEO or general counsel generally may not, and neither may a lower-level employee or a shareholder.²¹

Fixing the duty on the entity follows from how an organization acts. A corporation speaks only through people, and those people change, disagree with one another, and sometimes pursue interests of their own. If every officer who gave instructions became the lawyer's client, the lawyer would owe loyalty to each of them at once and could not protect the organization against an officer whose own conduct was the problem. Treating the entity as the client keeps the duty with the organization and avoids the conflicts between individual and entity that the ethics rules are built to prevent. Shareholders stand outside the relationship for a similar reason: they are many, their interests diverge, and the lawyer cannot serve all of them and the entity at once.

That qualification matters because a lawyer may represent constituents as well as the entity, whether by express agreement or by implication. In that case the lawyer owes a duty to both, and both may enforce it in a malpractice action.²² MRPC 1.13(g) permits the dual representation but cautions that it must comply with the conflict-of-interest rules.²³ The implied route works as the previous subsection described: the question is whether the constituent reasonably relied on the lawyer for personal legal services and the lawyer knew or should have known of that reliance. The inference does not run automatically in the other direction. A lawyer who represents a constituent does not by that fact alone also represent the organization, as the Ohio court recognized in New Destiny Treatment Center, Inc. v. Wheeler.²⁴

Payment of the fee is an equally unreliable marker of who the client is. Neither a fee nor a signed retainer is needed to form a relationship, and by the same logic paying a fee does not form one.²⁵ When a lawyer is retained to represent one person and another person or entity pays, the payor is not a client by payment alone and is owed no duty enforceable in a malpractice action, unless an express agreement says otherwise or other facts create an implied relationship.²⁶ Courts have applied the rule where a man paid for the divorce representation of the woman he later married in Krug v. Krug, and where a stepfather paid legal fees for his stepson in Fox v. White, in which the Missouri Court of Appeals affirmed dismissal of the payor's malpractice suit.²⁷ The rule follows from how a relationship forms. It arises when a person authorizes the lawyer to act and the lawyer accepts, and a check is evidence of neither. A payor finances someone else's representation, and treating the payor as a client would hand a claim to a person the lawyer never agreed to serve. It could also set the lawyer's loyalty to the person served against the wishes of the person funding the work.

A payor who also signs the engagement agreement as a client, or who receives the lawyer's legal advice directly and reasonably relies on it for the payor's own interests, stands in a different position. Those facts supply the express agreement or implied relationship that payment alone lacks.²⁸

Insurance defense adds a third party to the picture. Traditionally, a lawyer whom an insurer retained and paid to defend an insured was placed in a tripartite relationship, a three-way arrangement among lawyer, insurer, and insured in which the insurer and the insured were both the lawyer's clients. Beginning with Atlanta International Insurance Co. v. Bell, a 1991 Michigan decision, a growing number of jurisdictions have held that the insured is the only client.²⁹ Under either approach the insured may sue the lawyer for malpractice even though the insurer pays the bills, and the approaches diverge only on the insurer's position. Under the dual-client approach the insurer is similarly situated and may sue. Under the insured-only approach the insurer may still sue if the retainer agreement makes it a client, or if a relationship arises by implication, as where the lawyer has given legal advice directly to the insurer.

The insured-only view applies the fee-payor logic to the insurer. The Restatement of the Law Governing Lawyers treats the insured as a client and says the insurer does not become one simply because it designates the lawyer.³⁰ The defense protects the insured's interests, so the lawyer's loyalty has to run to the insured even though someone else pays. Some courts soften the result for insurers. The Minnesota court in Pine Island Farmers Coop v. Erstad & Reimer held that a lawyer owes a duty to the insurer even when the insurer is a nonclient, because the lawyer's services ordinarily benefit both the insured and the insurer.³¹ Jurisdictions differ on all of this, so an exam stem that turns on the insurer's status will usually state the governing approach.