Petrillo v. Bachenberg
655 A.2d 1354, 63 U.S.L.W. 2641, 139 N.J. 472 (1995)
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Rule of Law:
An attorney for a seller of real estate owes a duty to a potential buyer when the attorney provides misleading information that the attorney knows, or should know, the buyer will foreseeably rely upon for a proper business purpose.
Facts:
- In 1987, Rohrer Construction (Rohrer), represented by attorney Bruce Herrigel, owned undeveloped land and hired Heritage Consulting Engineers to conduct percolation tests in September and October 1987, which revealed only two successful tests out of thirty.
- Herrigel created and sent a 'composite report' to Rohrer's real estate broker, William Bachenberg, which misleadingly suggested two successful tests out of seven.
- After Rohrer failed to sell the property, Bachenberg and his partner John Matthews purchased it at a sheriff's sale in December 1988.
- In February 1989, potential buyer Lisa Petrillo received the composite report from Bachenberg as she expressed interest in buying the property for a child day-care facility.
- Petrillo contracted to buy the property from Bachenberg, with Herrigel representing Bachenberg in the negotiations; the contract allowed Petrillo 45 days for independent soil and water tests.
- In August 1989, Petrillo's independent percolation tests all failed, leading her to notify Bachenberg that the contract was null and void.
- Bachenberg refused to return Petrillo's $16,000 down payment, claiming she breached the contract, and Herrigel subsequently provided Petrillo with the complete, original percolation reports.
Procedural Posture:
- Lisa Petrillo sued William Bachenberg, John Matthews, and Bruce Herrigel in the Law Division (trial court), alleging claims including breach of contract, fraud, concealment, negligent misrepresentation, and conspiracy for the return of her down payment and engineering fees.
- At the close of Petrillo's case, the trial court dismissed her complaint against Herrigel, finding she had not alleged facts sufficient to support a duty extending from Herrigel to her.
- The trial court also dismissed Petrillo’s claims against Bachenberg and Matthews for concealment.
- A jury subsequently found that Petrillo had breached the contract and that Bachenberg was entitled to keep her $16,000 deposit.
- The Appellate Division reversed the dismissal of Petrillo's fraud claim against Bachenberg and also reversed the judgment entered on the verdict against Petrillo due to improper jury instructions.
- The Appellate Division reversed the trial court's dismissal of Petrillo’s claims against Herrigel for negligent misrepresentation, determining that a seller's attorney owes a duty to a non-client buyer 'who the attorney knows or should know would rely on the attorney in his or her professional capacity'.
- Herrigel's petition for certification was granted by the Supreme Court of New Jersey to determine whether he owed such a duty to Petrillo.
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Issue:
Does an attorney for a seller of real estate owe a duty to a potential buyer when the attorney provides misleading information that the attorney knows or should know the buyer will foreseeably rely upon in deciding whether to purchase the property?
Opinions:
Majority - Pollock, J.
Yes, an attorney for a seller of real estate owes a duty to a potential buyer when the attorney provides misleading information that the attorney knows or should know the buyer will foreseeably rely upon. The determination of a duty balances the attorney's duty to represent clients vigorously with the duty not to provide misleading information on which third parties foreseeably rely. Courts relax privity requirements when an attorney induces specific non-clients to rely on their representations, especially for documents like opinion letters or title reports where reliance is intended or foreseeable. Adopting principles from the Restatement (Second) of Torts § 552 and the proposed Restatement of the Law Governing Lawyers § 73, a duty arises when a lawyer invites or acquiesces in a non-client's reliance and knows or should know of that reliance. Herrigel, by extracting information to create the misleading composite report, delivering it to a real estate broker, and then continuing to represent Bachenberg in the sale to Petrillo, assumed a duty to Petrillo. He should have foreseen that Bachenberg would transmit the report to a prospective purchaser like Petrillo, who would rely on it. Herrigel did nothing to restrict the report's use, nor did he provide a disclaimer regarding its completeness or accuracy, despite having easily been able to provide the complete reports. His continuous involvement and the report's objective purpose of inducing a purchase created this duty.
Dissenting - Garibaldi, J.
No, the attorney Herrigel did not owe a duty of care to Petrillo under these circumstances because the harm to Petrillo was unforeseeable and her reliance on Herrigel's conduct was not established. The majority's decision imposes an overly broad duty of care on attorneys to remote non-clients, extending beyond the limited circumstances envisioned by the Restatement of the Law Governing Lawyers § 73 and Restatement (Second) of Torts § 552. A duty to non-clients arises only in specific situations, such as when a lawyer provides a legal opinion or undertakes a specific legal task directly for a non-client, or when the non-client's reliance is clearly invited or directly intended. This case involved neither a legal opinion nor direct legal services to Petrillo. Petrillo was too remote from Herrigel; she received the report from Bachenberg, who was no longer Herrigel's client (Rohrer) when he transmitted it to her, but a subsequent seller. Herrigel had no knowledge of what Bachenberg gave Petrillo. Furthermore, Petrillo consistently testified that she did not rely on the composite report in deciding to purchase, but rather on her own experts and contract provisions. Expanding attorney liability in such a way will inevitably lead to defensive lawyering, making legal services more cumbersome, more costly, and less accessible to clients.
Concurring - Stein, J.
Yes, I agree with the Court's decision that an attorney for a seller can owe a duty to a potential buyer under these specific facts. However, I emphasize that the Court's decision effects no material change in the general liability of lawyers to third parties, and the 'calamitous consequences' forecast by the dissent vastly overstate the effect of this holding. The decision rests on the 'exceptional factual predicate' of this case: Herrigel prepared a misleading composite report while representing the initial owner (Rohrer), transmitted it to Bachenberg (who later acquired the property), and then continued to represent Bachenberg in the subsequent sale to Petrillo, without informing Petrillo's attorney of the omitted test results. Given this specific and uncommon factual basis, it is foreseeable that the composite report would be delivered to and relied upon by Petrillo. Therefore, the likelihood that this decision will have a significant impact on the professional liability of lawyers to third parties is minimal.
Analysis:
This case significantly expanded the scope of attorney liability beyond strict privity, affirming a duty to non-client third parties for negligent misrepresentation. It aligns attorney liability with other professionals (like accountants) under the Restatement (Second) of Torts § 552, focusing on the foreseeability of reliance by a limited group of persons. Future cases will likely examine the 'foreseeability of reliance' and the 'remoteness' of the third party to determine the existence and scope of an attorney's duty, particularly when attorneys create or transmit documents that are intended to induce business transactions. The decision encourages attorneys to exercise greater care in preparing and disseminating information that may be relied upon by others, even if they are not direct clients.
