Phillips v. Carson
240 Kan. 462, 731 P.2d 820 (1987)
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Rule of Law:
A law firm may be vicariously liable for the professional negligence of a partner who, while engaged in a personal business transaction with a client, provides negligent legal advice concerning that transaction. Liability attaches if the partner acted with apparent authority, which exists when the partner's actions are for "apparently carrying on in the usual way the business of the partnership," creating a reasonable belief in the client that the partner is acting on behalf of the firm.
Facts:
- Thelma L. Phillips hired attorney David W. Carson and his law firm to handle her late husband's estate, paying a single fee of $80,000 understood to cover all legal work until the estate closed.
- The firm also provided Phillips with other personal legal services, such as tax preparation and representation in a dispute with a builder, without additional billing.
- In August 1980, after Carson told Phillips he was having financial problems, she loaned him $200,000. Carson prepared the promissory note and a second mortgage on an Arizona property to secure the loan.
- In 1981, Phillips loaned Carson an additional $70,000.
- In March 1982, Carson persuaded Phillips to release her mortgage on the Arizona property, telling her he would provide a 'better' secured position with a mortgage on his property in Wyandotte County.
- At Carson's law office, Phillips signed the release and received a new promissory note. Carson prepared a mortgage on the Wyandotte County property but failed to file it with the Register of Deeds, leaving the loan unsecured.
- Throughout these loan transactions, Carson never advised Phillips to seek independent legal counsel.
- Phillips later discovered the mortgage was unrecorded after Carson filed for bankruptcy.
Procedural Posture:
- Thelma L. Phillips filed a professional negligence action against attorney David W. Carson, his law firm partnership, and the individual partners in the Johnson County District Court (trial court).
- Carson filed a motion for summary judgment combined with a confession of judgment on the underlying promissory note, but not on the negligence claim.
- The partnership and the other individual partners also filed motions for summary judgment, arguing they were not vicariously liable for Carson's personal actions.
- The trial court granted summary judgment for Phillips against Carson, finding him negligent as a matter of law.
- The trial court also granted summary judgment for the partnership and the other partners, finding as a matter of law that Carson was not acting within the scope of partnership business.
- Carson appealed the judgment against him to the Kansas Supreme Court.
- Phillips cross-appealed the judgment in favor of the partnership and its partners.
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Issue:
Does a law firm partner act with apparent authority, creating a triable issue of fact regarding the partnership's vicarious liability, when he borrows money from a client and negligently provides legal services for that personal loan using firm resources?
Opinions:
Majority - Miller, J.
Yes. A genuine issue of material fact exists as to whether a law firm partner acted with apparent authority, potentially making the partnership vicariously liable for his professional negligence, when he provided negligent legal services related to a personal loan from a client using firm resources. The court first affirmed the summary judgment against Carson individually, finding that the undisputed facts established an attorney-client relationship regarding the loan transactions. Carson breached his fiduciary duty by failing to properly secure the loan, failing to adequately advise Phillips of the legal ramifications, and critically, failing to urge her to seek independent counsel. Regarding the partnership's liability, the court reversed the summary judgment in favor of the firm. Citing the Uniform Partnership Act, the court found that partnership liability hinges on whether a partner acts "for apparently carrying on in the usual way the business of the partnership." Advising on loans, preparing notes, and recording mortgages are all well within the scope of a general law practice. The firm's conduct, including allowing Carson to use firm offices, letterhead, and staff for the transaction, could have created a reasonable belief in Phillips that Carson was acting with the firm's authority. Therefore, whether Carson had apparent authority is a question of fact for a jury, not a matter of law for a judge to decide on summary judgment.
Analysis:
This case clarifies the scope of vicarious liability for professional partnerships, establishing that a firm's liability can extend to a partner's personal business transactions with a client if those transactions involve legal services falling within the firm's ordinary course of business. The decision emphasizes that a firm's internal practices, such as allowing the use of firm resources for personal matters, can create apparent authority and expose the partnership to significant liability. This precedent puts law firms on notice that they must clearly delineate between partners' personal activities and firm business, and perhaps implement policies prohibiting partners from providing legal advice in personal transactions with clients to mitigate risk.
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