Security Bank & Trust Co. v. Larkin, Hoffman, Daly, Lindgren Ltd., __ N.W.2d __ (Minn. 2018); File June 27, 2018, A16-1810. I reported this case when it was in the Court of Appeals. This Court reversed the Court of Appeals. The facts are simple. Client had attorney draft a revocable trust for client. The trust devised about 45% of the trust property to a person more than 37.5 years younger than the trustor thereby triggering a generation-skipping transfer tax (GSTT) of about $1.645 million. The allegation is that the attorney never advised the trustor about the tax or options to reduce the tax. The holding of the Supreme Court is simple but the analysis is significant. The Supreme Court held that a personal representative does not have standing to bring a malpractice claim that did not exist before the testator died but would have standing if the claim existed before death. The Court also held that the trustee of the decedent’s revocable trust did not have standing to bring a malpractice claim because a trust is not a person and therefore not an intended third-party beneficiary of the attorney-client relationship. There is a great to deal unpack in this case.
Standing of a personal representative or trustee. Standing is a central issue. Under Minnesota law, a malpractice case survives a testator’s death (if it accrues before death). Minn. Stat. § 573.01. If damages accrue before the testator dies thereby creating a tort claim then the personal representative has standing to bring the tort claim. Minn. Stat. § 524.3-703(c). Note that contract claims can also be brought but they are subject to the non-claim statute of the probate code, Minn. Stat. 524.3-803(a), while tort claims are not included in the definition of “claims” in probate, Minn. Stat. § 524.1-201(8), and are not subject to the non-claim statute. With regard to trustees, this Court found that the trustee is not a third party intended beneficiary of the attorney-client relationship. The Court said: “[a] trust, then, is not itself a ‘thing’ or a person under the law.” Therefore it could not be the intended beneficiary of the attorney-client relationship. While the Court did leave the possibility open that a trust might be such a beneficiary in certain cases, such was not the case here.
What are the elements to a claim? First, each element of a claim must exist. In transactions such as estate planning, the elements to a claim include (1) the existence of the attorney-client relationship, (2) acts constituting negligence or breach of contract, (3) that such acts were the proximate cause of plaintiff’s damages, and (4) that but for the attorney’s conduct the plaintiff would have obtained a more favorable result in the relevant matter. In estate planning cases where a third party argues that he or she is a direct and intended beneficiary of the lawyer’s services, further analysis is needed. To be a direct and intended beneficiary, the party must be “a direct beneficiary of a transaction if the transaction has[,] as a central purpose[,] an effect on the third party and the effect is intended as a purpose of the transaction.” If that is proven then the court must then apply the Lucas v. Hamm, 364 P.2d 685 (Cal. 1961) factors to determine whether the lawyer is liable to a third party. These factors include: (1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to him, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of connection between the defendant’s conduct and the injury, and (5) the policy of preventing future harm. This Court found that a personal representative stands in the decedent’s shoes and therefore satisfies the first element of the test. The alleged facts, taken as plead, may satisfy the remaining elements of a claim in this case.
When does the claim accrue? When some damage accrues. If the personal representative (or trustee) has standing and a claim can be proven, the next big questions is: When does the claim accrue? The answer is when “some damage” accrues. If you can prove some damage occurred as the result of professional negligence then the claim has accrued. The term “some damage” is to be interpreted broadly and does not require that the majority or substantial portion of the possible damages has taken place. However, the Court held that “some damage” included a “concrete harm created either by financial liability or the loss of a legal right” and goes on to say that in this case the decedent suffered no “material injury” to accrue damages before death. The Court found that mere reliance on bad advice is not some damage that results in an accrued claim. While it seems we only need “some damage” the Court seemed to still require some type of material injury to make a claim accrue. So in the estate planning context, some damage can accrue while the client is alive and some damage can accrue after the client dies. If the damage accrues when the client is alive then the client can sue for malpractice while alive and the personal representative can sue for malpractice after death for the decedent. But if some damage accrues after death, it seems only the intended third party beneficiary can sue for malpractice.