PRESENTS:

1. PRESENTS: Expanding Privity Presented By: 12900 Hall Rd., Suite 470 ▪ Sterling Heights, MI 48313 Phone:586-803-8500 ▪ Fax:586-803-8508 Email:michele@michiganlawcenter.com www.MichiganLawCenter.com

2. Privity • What is privity? • a relationship between persons who successively have a legal interest in the same right or property • an interest in a transaction, contract, or legal action to which one is not a party arising out of a relationship to one of the parties • Traditionally limited to direct contractual relationship. Counsel Trustee Beneficiary

3. Traditional Relationship • Professor Geoffrey C. Hazard Jr.,Yale Law School: • Defending Guardian • No prior relationship with ward, e.g. defending Guardian in action to surcharge • Arms-length representation • Representation of Guardian on initial petition for appointment • Advises them of their duties • Arms-length representation • Termination of Guardianship • Being brought in for the first time to terminate the fiduciary appointment • Arms-length representation

4. Expanding Traditional Relationships • Derivative relationship like that in joint representation • Basis is duty of confidentiality • Confidentiality: Information between parties-lawyer, guardian and ward. • Those inside the representation relationship are confidential to all those outside the relationship. • Loyalty: attorney owes duty of loyalty to guardian and ward as long as no adverse interests • Focus is not on the structure of the relationship, but what happens during the relationship. • How the duties are carried out.

5. Expanding Traditional Relationships Lawyer Guardian Ward What happens during the relationship? Lawyer Guardian Ward

6. Six Part Test • Biakanja v. Irving, 49 Cal. 2d 647, 320 P.2d 16 (1958) • Six factors determining expanded privity: • The extent to which the transaction was intended to affect the plaintiff; • The foreseeability of harm to the plaintiff; • The degree of certainty that the plaintiff suffered injury; • The closeness of connection between defendant’s conduct and the injury suffered; • The moral blame attached to the defendant’s conduct, and • The policy of preventing harm.

7. Case Law • Lucas v. Hamm, 56 Cal.2d 583 (1961), cert. denied, 368 U.S. 987 (1962) • The Lucas court expanded the six-part test to include attorney’s duties to non-clients. • No undue burden • Would not create unlimited liability • The innocent third party shouldn’t suffer • The intent was and would be frustrated.

8. Case Law • Stewart v. Sbarro, 142 N.J. Super. 581, 362 A.2d 581 (1976) • “It is true that generally an attorney is not liable to third persons for negligence in the performance of his professional duties.” • “Where an attorney assumes a fiduciary obligation it applies to persons who, though not strictly clients, he has or should have reason to believe rely on him. We believe, moreover, that where … an attorney undertakes a duty to one other than his client, he may be liable for damage caused by a breach of that duty to a person intended to be benefited by his performance.”

9. Case Law • Gould v. Mellick & Sexton, 263 Conn. 140 (2003).  • The Court used a balancing test similar to that set forth in Biakanja • The court held that under the facts presented the defendant attorneys did not owe a duty of care to the plaintiffs. • Determine whether an ordinary person would have anticipated the harm • Determine whether the defendant’s responsibility for its negligent conduct should extend to the particular consequences or particular plaintiff in the case

10. Case Law • JP Morgan Chase v. Marie Homan, 2012 NY slip Op 22387 • Trustees have “an unwavering duty of complete loyalty to the beneficiary of the trust to the exclusion of the interests of all other parties.” • Courts will intervene not only when the trustee behaves recklessly, but also when the trustee fails to exercise judgment altogether • Both case law and basic principles of trust administration and fiduciary obligation require the trustees to take appropriate steps to keep abreast of Son's condition, needs, and quality of life, and to utilize trust assets for his actual benefit.

11. Case Law • In Liranzo v. LI Jewish Education / Research (N.Y. Sup. Ct., Kings Cty., No. 28863/1996, June 25, 2013 • The trust specifically stated a good-faith effort must be made in assessing the availability of government benefit before make disbursement. • BNY Mellon required to payback $180,000 to SNT for improper disbursements • Failed to abide by the terms of the trust; • Failed to assess whether public benefits were in the best interest; • Failed to seek governmental assistance to pay for care; • Made disbursements that rendered beneficiary ineligible for SSI

12. Protective Measures • Retainer agreement language • Non-engagement letters • Closing letters • Know when to get out • Use caution when volunteering information to non-client • Clarify in writing: fact vs. opinion • Be aware of the subjective nature of the standard

13. Thank You 12900 Hall Rd., Suite 470 ▪ Sterling Heights, MI 48313 Phone:586-803-8500 ▪ Fax:586-803-8508 Email:michele@michiganlawcenter.com www.MichiganLawCenter.com