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Flaherty v. Weinberg

Court of Appeals of Maryland
492 A.2d 618, 303 Md. 116 (1985)
ELI5:

Rule of Law:

An attorney may be liable for negligence to a non-client if the non-client can prove they were an intended third-party beneficiary of the attorney-client relationship, meaning the client's intent to benefit the non-client was a direct purpose of the transaction.


Facts:

  • In 1977, Robert and Sally Flaherty contracted to purchase a home.
  • The Flahertys secured a mortgage loan from First Federal Savings and Loan Association (First Federal) to finance the purchase.
  • First Federal retained the law firm of Weinberg, Michel and Sterns (Weinberg) to represent it at the property settlement.
  • The Flahertys did not retain their own separate counsel for the settlement.
  • At settlement, Weinberg assured the Flahertys that a dwelling and a well were located on the property within the described boundary lines.
  • In 1982, the Flahertys obtained a new survey which revealed that the well was not on their property and that their swimming pool, driveway, and a retaining wall encroached onto their neighbor’s property.
  • The Flahertys subsequently learned that a survey ordered by First Federal and completed by Weinberg's firm shortly after the 1977 settlement had already revealed these encroachments.

Procedural Posture:

  • The Flahertys filed a declaration against Weinberg in the Circuit Court for Frederick County, a trial court.
  • The trial court sustained Weinberg's demurrer to the Flahertys' initial and amended declarations.
  • The trial court sustained Weinberg’s demurrer to the second amended declaration without leave to amend, ruling that Weinberg owed no duty to the Flahertys because there was no privity of contract and they were not intended beneficiaries.
  • The Flahertys dismissed their suit against the other defendant to create a final, appealable judgment.
  • The Flahertys (appellants) appealed to the Court of Special Appeals, an intermediate appellate court.
  • The Court of Appeals of Maryland, the state's highest court, granted certiorari before the Court of Special Appeals heard the case.

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Issue:

Does a homebuyer, who is not in privity of contract with the lender's attorney, state a valid cause of action against that attorney for malpractice by alleging they were an intended third-party beneficiary of the attorney's services to the lender?


Opinions:

Majority - Cole, J.

Yes. An attorney may owe a duty to a non-client who was the intended third-party beneficiary of the attorney's employment. While Maryland generally adheres to the strict privity rule in attorney malpractice cases, an exception exists where the plaintiff can allege and prove that the intent of the client to benefit the non-client was a direct purpose of the transaction. The court found that the Flahertys' allegation in their complaint that the hiring of Weinberg was intended to benefit them as purchasers was a sufficient assertion of fact to survive a demurrer. Although they may have difficulty proving this claim, at the pleading stage, this allegation establishes a potential duty owed by Weinberg to the Flahertys, allowing their cause of action for negligent misrepresentation to proceed.



Analysis:

This decision formally establishes the third-party beneficiary exception to the strict privity rule for attorney malpractice in Maryland. It provides a limited avenue for non-clients, particularly in real estate transactions, to sue an attorney whose negligence caused them harm. The ruling narrows the protection of the privity doctrine but sets a high bar for future plaintiffs, requiring them to prove that the client's intent to benefit them was a 'direct purpose' of the transaction, not merely an incidental one. This standard aims to prevent a flood of litigation from anyone indirectly affected by an attorney's work while still providing a remedy for foreseeable and intended beneficiaries.

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