Legal Malpractice

How Close is Privity in Legal Malpractice and Elsewhere?

By (Andrew Lavoott Bluestone)

Sometimes we find a stimulating discussion of a principal of legal malpractice in decisions concerning other professions.  In this case Sykes v RFD Third Ave. 1 Assoc., LLC ;2009 NY Slip Op 06387 ;Decided on September 8, 2009 ;Appellate Division, First Department ;Moskowitz, J.  we find a discussion of privity and third-party beneficiary law which informs legal malpractice issues.
 

"Plaintiffs' negligent misrepresentation claim fails to allege a "special relationship," i.e., "a relationship so close
as to approach that of privity" (Parrott v Coopers & Lybrand, 95 NY2d 479, 484 [2000]). The New York Court of Appeals takes a rather cautious approach to determining whether a relationship necessary to support a claim for negligent misrepresentation exists (see Ossining Union Free School Dist. v Anderson LaRocca Anderson, 73 NY2d 417, 424 [1989] ["[w]e have defined this duty narrowly, more narrowly than other jurisdictions"]). This narrow approach developed out of concern for the "limitless liability" that could result that otherwise would stop with the contracting parties (Parrott at 483 citing Prudential Ins. Co., v Dewey Ballantine, Bushby, Palmer & Wood, 80 NY2d 377, 382 [1992]; see also Credit Alliance Corp. v Arthur Andersen & Co., 65 NY2d 536, 553 [1985] [explicitly rejecting a rule "permitting recovery by any foreseeable plaintiff"]; Ossining, 73 NY2d at 421 ["[i]n negligent misrepresentation cases especially, what is objectively foreseeable injury may be vast and unbounded, wholly disproportionate to a defendant's undertaking or wrongdoing"]).

Therefore, before a stranger to a contract can claim harm from negligent misrepresentation, there must be: "(1) an awareness by the maker of the statement that it is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance" (Parrott, 95 NY2d at 484 [citations omitted]; see also Securities Investor Protection Corp. v BDO Seidman, 95 NY2d 702, 712 [2001] [no privity between SIPC and accountants where accountants had not prepared audit reports for the specific benefit of SIPC, did not send them to SIPC and SIPC never read these reports]). [*4]

Accordingly, we have been circumspect when assessing privity (see e.g. Houbigant, Inc. v Deloitte & Touche, 303 AD2d 92, 94-95 [2003] [accountant's audit "was a task performed pursuant to professional standards applicable in the context of any audit, and was not undertaken pursuant to any duty owed toward [plaintiff]"); LaSalle Natl. Bank v Ernst & Young, 285 AD2d 101, 107-108 [2001] no privity between lender and borrower's accountants where only contact was single phone call]; see also Israel Discount Bank of N.Y. v Miller, Ellin & Co., 277 AD2d 58, 59 [2000]).

"Although this rule first developed in the context of accountant liability, it has applied equally in cases involving other professions" (Parrott, 95 NY2d at 483; see also Ossining at 424 ["[n]or does the rule apply only to accountants"]). This Court too has extended the privity requirements of Parrott beyond
the accountant arena (see e.g. Bri-Den Constr. Co., Inc. v Kappell & Kostow Architects P.C., 56 AD3d 355 [2008], lv denied 12 NY3d 703 [2009] [no privity between architect and bidder]); Point O'Woods Assn. v Those Underwriters at Lloyd's, London subscribing to Certificate No. 6771, 288 AD2d 78, 79 [2001], lv denied 98 NY2d 611 [2002] [no privity between insurance carrier and broker]). "

Full post as published by New York Attorney Malpractice Blog on September 09, 2009 (boomark / email).