Certiorari to the Colorado Court of Appeals. Court of Appeals Case Nos. 12CA907 and 12CA1702.
This case principally requires us to decide whether dissatisfied beneficiaries of a testator's estate have standing to bring legal malpractice or contract claims against the attorney who drafted the testator's estate planning documents. Specifically, petitioners ask us to abandon what has come to be called the " strict privity rule" and to allow them to bring malpractice and contract claims against respondents, who were the attorneys retained by their father to prepare his estate plan.
We decline to abandon the strict privity rule, and we reaffirm that where non-clients are concerned, an attorney's liability is generally limited to the narrow set of circumstances in which the attorney has committed fraud or a malicious or tortious act, including negligent misrepresentation.
We further reject petitioners' contention that the division of the court of appeals erred in affirming the dismissal of their purported fraudulent concealment claims.
Accordingly, we affirm the judgment of the court of appeals dismissing petitioners' claims.
For Petitioners: William C. Waller, Jr., Reid A. Page, Dylan H. Metzner, Stinson Leonard Street LLP, Greenwood Village, Colorado; Denis H. Mark, Denis H. Mark, P.C., Greenwood Village, Colorado.
For Respondents: Michael L. O'Donnell, Carolyn J. Fairless, Kendra N. Beckwith, Wheeler Trigg O'Donnell LLP, Denver, Colorado.
For Amicus Curiae Colorado Bar Association: Nancy L. Cohen, Lauren H. Lantero, MiletichCohen, PC, Denver, Colorado; Christopher B. Little, Montgomery Little & Soran, PC, Greenwood Village, Colorado.
[¶1] This case principally requires us to decide whether dissatisfied beneficiaries of a testator's estate have standing to bring legal malpractice or contract claims against the attorney who drafted the testator's estate planning documents. Specifically, petitioners Merridy Kay Baker and Sue Carol Kunda seek to bring malpractice and contract claims against respondents Wood, Ris & Hames, Professional Corporation, Donald L. Cook, and Barbara L. Brundin (collectively, the Attorneys), who were the attorneys retained by their father, Floyd Baker, to prepare his estate plan. Baker and Kunda ask us to abandon what has come to be called the " strict privity rule," which precludes attorney liability to non-clients absent fraud, malicious conduct, or negligent misrepresentation. They advocate instead for the so-called " California Test" and for an extension of the third-party beneficiary theory of contract liability frequently called the " Florida-Iowa Rule," both of which they assert would allow them, as alleged intended beneficiaries of Floyd's estate, to sue the Attorneys for legal malpractice and breach of contract.
[¶2] We decline to abandon the strict privity rule, and we reaffirm that where non-clients like Baker and Kunda are concerned, an attorney's liability is generally limited to the narrow set of circumstances in which the attorney has committed fraud or a malicious or tortious act, including negligent misrepresentation.
[¶3] We further reject Baker and Kunda's contention that the division of the court of appeals erred in affirming the dismissal of their purported fraudulent concealment claims.
[¶4] Accordingly, we affirm the judgment of the court of appeals.
I. Facts and Procedural History
[¶5] Baker and Kunda were Floyd Baker's children and the stepchildren of Floyd's wife, Betty Baker. Betty had two children by a prior marriage, Paula B. Roosa and Robert F. Brown.
[¶6] Floyd retained the Attorneys to prepare his estate plan, and based on the Attorneys' advice, he decided to use a will and testamentary trusts to govern the dispositive terms of that plan. Floyd's will provided that on his death, each of the four children would receive a $10,000 distribution, and Betty would receive Floyd's condominium. The will further provided that the residue of Floyd's estate would be divided between a marital testamentary trust and a family testamentary trust. Betty was designated as the trustee and beneficiary of both of these trusts, with the right to receive principal and
income derived from the assets of each trust. On Betty's death, the remaining trust assets would be divided equally among the four children.
[¶7] Floyd died in 2003, survived by Betty and all four children. Before his death, certain of his assets were held in joint tenancy with Betty. Accordingly, when Floyd died, these assets passed directly to Betty as the surviving joint tenant. In addition, on Floyd's death, each child received his or her $10,000 testamentary bequest, and the family and marital trusts were both funded, with the family trust receiving assets worth approximately $929,000 and the marital trust receiving approximately $64,000.
[¶8] Thereafter, Baker and Kunda contacted respondent Wood, Ris & Hames to seek assurances as to the proper funding and administration of Floyd's trusts. On November 19, 2003, respondent Brundin answered in writing on behalf of the firm. Brundin's letter attached a copy of Floyd's will and explained the $10,000 bequests to each of the children. The letter further described the creation, funding, and general operation of the family trust. And Brundin wrote, " Please understand that I represent Betty Baker as the Personal Representative of Mr. Baker's estate only and I cannot represent either of you individually. If you feel you need an attorney to review the Will to become familiar with the positions [sic], I encourage you to do so."
[¶9] Subsequently, Betty, in her individual capacity, retained respondent Cook to prepare her own estate plan. Betty executed her last will and testament in November 2004, and she signed two codicils thereafter. She died in February 2009, survived by Roosa, Baker, and Kunda.
[¶10] Pursuant to Betty's will, the condominium that she owned was devised to Roosa, and the residue of her estate was to be divided among Roosa, Baker, and Kunda. Baker and Kunda allege that the distribution of probate and non-probate assets following Betty's death resulted in Roosa's receiving seventy percent of Betty's assets, while Baker and Kunda received only fifteen percent each. They further allege that after Betty's death, Roosa was anticipated to receive approximately $3.2 million in assets from Floyd's will and Betty's will, while they would receive approximately $962,000 each.
[¶11] Baker and Kunda subsequently sued the Attorneys, asserting claims for, among other things, (1) breach of contract-third-party beneficiary, (2) professional negligence, and (3) fraudulent concealment and negligent misrepresentation. In support of these claims, Baker and Kunda alleged that the Attorneys had failed to advise Floyd of the impact of joint tenancy and that titling assets in joint tenancy and failing to sever joint tenancy properties would frustrate his intent to treat the children equally. Specifically, they alleged that (1) the Attorneys' negligence allowed Betty to override Floyd's estate plan after his death; (2) the Attorneys had drafted an estate plan for Betty that controverted Floyd's plan; and (3) Baker and Kunda were the intended beneficiaries of Floyd's will, the Attorneys had failed to advise them of the above-noted facts, and they suffered damages as a result of the Attorneys' actions and inactions.
[¶12] The Attorneys moved to dismiss the complaint for failure to state a claim on which relief could be granted. As pertinent here, they asserted that Baker and Kunda lacked standing to sue them and that even if Baker and Kunda had standing, their claims failed because Floyd's intent had to be gleaned from his will itself, and the will was unambiguous and did not evince the intent alleged by Baker and Kunda. The Attorneys further argued that all of Baker and Kunda's claims were time-barred.
[¶13] The district court ultimately granted the Attorneys' motion. As pertinent here, the court dismissed Baker and Kunda's contract claim, concluding that Baker and Kunda had not alleged sufficient facts to show that Floyd's testamentary intent was subverted. The court further concluded that Baker and Kunda had not alleged sufficient facts to support their fraudulent concealment and negligent misrepresentation claims. Regarding the fraudulent concealment claim, the court found that Baker and Kunda had not sufficiently alleged that any of the purportedly concealed facts had actually been
concealed or that the Attorneys had intended for Baker and Kunda to rely on the allegedly misrepresented circumstances. As for the negligent misrepresentation claim, the court observed that under Allen v. Steele, 252 P.3d 476, 484 (Colo. 2011), such a claim required a business transaction, and the present case involved no such transaction. Finally, with respect to Baker and Kunda's legal malpractice claim, the court concluded that Baker and Kunda had failed to establish that the Attorneys owed them a duty of care that would give rise to liability.
[¶14] Baker and Kunda appealed, contending that the district court had erred in dismissing their claims. As pertinent here, they asked the division to recognize an exception to the strict privity rule for third-party intended beneficiaries of a will. Alternatively, they asserted that even if the strict privity rule applied, they had stated viable claims under its exceptions for fraud, malicious conduct, and negligent misrepresentation.
[¶15] The division declined to recognize an exception to the strict privity rule that would have extended attorney contractual liability to non-clients, and thus, the division affirmed the dismissal of Baker and Kunda's contract claims. In addition, although the division acknowledged that under Colorado's strict privity rule, non-clients could sue an attorney for fraud and negligent misrepresentation, the division nonetheless affirmed the dismissal of Baker and Kunda's fraudulent concealment and negligent misrepresentation claims. Specifically, the division concluded that Baker and Kunda had not pleaded those claims with the particularity mandated by C.R.C.P. 9(b) and had not shown that they were engaged in a business transaction with the Attorneys, as required to support a negligent misrepresentation claim. Finally, and consistent with its above-described conclusions, the division affirmed the dismissal of Baker and Kunda's professional malpractice claim, concluding that under Colorado law, the Attorneys owed them no duty unless one of the exceptions (i.e., for fraud, malicious conduct, or negligent misrepresentation) applied, and Baker and Kunda had not alleged sufficient facts to state a claim under any of those exceptions.
[¶16] We subsequently granted Baker and Kunda's petition for certiorari.
[¶17] Baker and Kunda contend that the district court erred in dismissing their claims because (1) as alleged intended third-party beneficiaries of Floyd's estate, they have standing to sue the Attorneys for legal malpractice and breach of contract; and (2) the division below misconstrued their fraudulent concealment claims and incorrectly applied a heightened pleading standard to those claims. We are not persuaded.
[¶18] Baker and Kunda acknowledge that, historically, courts have adhered to the strict privity rule in determining whether a non-client may sue an attorney. They urge us to abandon that rule, however, and to adopt both the California Test and the Florida-Iowa Rule, which would allow them to assert legal malpractice and contract claims against the Attorneys, ...