In 2009, our firm was unsuccessful in persuading our appellate court to extend the liability of trusts and estates lawyers to the intended beneficiaries of the instruments which they draft, as opposed to owing duties only to the Testator. In Rydde v. Morris, 675 S.E.2d 431 (2009), the Plaintiff complained that because of the negligence of the lawyer in failing to prepare the Last Will and Testament in a timely manner consistent with the hand written directions provided to her by the Testator, Rydde and several other intended beneficiaries received nothing from a multi-million dollar estate that the Testator intended to gift to them. Instead, an estranged aunt received an unexpected windfall. Because of several other cases which seemed to indicate a softening of the privity requirement of a legal malpractice case, we felt that our Court was ready to expand the law of legal malpractice given the compelling facts of Rydde. However, in addition to the lack of privity between the attorney and the intended beneficiaries, the Rydde case had another fatal flaw – there was never a Last Will and Testament. Because South Carolina does not recognize Will substitutes, it was impossible to prove the decedent’s intent short of invading the attorney client privilege that existed between Morris and the Testator and our Court upheld the underlying dismissal of the Rydde case. As a result, the Rydde case fell into a line of cases in South Carolina which held essentially that no duty is owed by an attorney to the intended beneficiaries of a testamentary instrument. Even so, in dicta the Rydde court commented that it found persuasive the reasoning of other States, such as New Hampshire, Connecticut and Florida, all of which recognize a duty from an attorney to the intended beneficiary of a testamentary instrument “where it is shown that the testator’s intent has been defeated or diminished by negligence on the part of the attorney.” So after Rydde, we were forced to wait and watch for a case in which the negligence of the attorney in preparing the testamentary instrument defeated or diminished its intent, thereby causing harm to the intended beneficiary. Enter Fabian.Dr. Fabian died on February 5, 2000, leaving an estate with an estimated value of $13,000,000.00. He was survived by his wife, his brother and two nieces. Dr. Fabian’s brother died just weeks after Dr. Fabian. One of the nieces, Erika Fabian, had always been told that she would be provided for in Dr. Fabian’s estate. Following his death, however, she received a letter explaining that she would not be receiving anything, along with two pages from Dr. Fabian’s trust. In reviewing the instrument, Erika identified what she believed to be a drafting error which defeated her intended gift. In part, the Trust provided that “If
my said brother, Eli Fabian, predeceases me, then one half of his share shall be distributed to his daughter, Miriam Fabian, … and the other half of his share shall be distributed to my niece, Erica (sic) Fabian.” Because Dr. Fabian’s brother did not predecease him, the trigger in the Trust was never pulled and Erika received nothing. Erika brought her claim for malpractice and sought to introduce extrinsic evidence to prove Dr. Fabian’s true intent, which was to included her in the Estate regardless of the timing of Eli Fabian’s death. The Circuit Court dismissed the claim relying upon the long line of prior cases that stood for the proposition that no duty was owed to an intended beneficiary of a testamentary instrument.In reviewing the matter, our Supreme Court first undertook a lengthy review of the traditional privity requirement in legal malpractice actions, noting in part that as early as the 1950’s, jurisdictions throughout the United States began to abandon strict privity as a requirement in legal malpractice. The Court noted that the majority of jurisdictions around the Country now recognize a cause of action by a third-party beneficiary of a will when the lawyer’s error defeats or diminishes the testator’s intent. In joining the majority of other States, our Court found: “In sum, today we affirmatively recognize causes of action both in tort and in contract by a third-party beneficiary of an existing will or estate planning document against a lawyer whose drafting error defeats or diminishes the client’s intent.” Fabian v. Lindsay, Opinion No. 27460 (October 29, 2014).THE BIGGER PICTURE:
While it is clear that Fabian now extends liability to intended third party beneficiaries in a trust and estate setting, its implications are likely far broader. The lynchpin of the Fabian decision was the abandonment of privity as an absolute requirement in legal malpractice claims. Indeed, a large part of opinion itself explores the historical basis for privity, as well as its historical softening. Why would the same principles not be equally applicable in other attorney client engagements? Do we not routinely draft contracts that are intended to benefit non-client, third-parties? Do we not recover money in cases where third parties have known lien rights? If the representation of the attorney will confer a direct benefit (as opposed to an inferential or tangential benefit) on a known and identifiable third party, why would the logic that led to liability in Fabian not apply in the same fashion? We think Fabian will have long and broad implications far beyond trusts and estates.PRACTICE POINTER:
If it is not the intent to benefit third parties through a particular engagement, it would probably be beneficial to state the intent clearly in the letter of engagement or in the instrument itself. If you are an estate attorney that drafts wills and trusts and are concerned about the implications of Fabian on your practice and that it will open the floodgates of disinherited or frustrated beneficiaries who are not in privity with you and will sue, here is some good advice. After reviewing the prior will or trust and noticing that beneficiaries have been changed or distribution of assets has changed, include language in the new will or trust from the testator explaining the reason for the disinheritance or the change in the distribution of assets. This is just good practice.Ronnie Richter and Eric Bland
CLICK HERE for the latest news and press releases from Bland Richter.
