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Keywords

settlementtortattorneyliabilityappealmalpracticepartnershiplegal malpractice
tortattorneyliabilityappealtrialmalpracticecorporationlegal malpractice

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McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 42 Tex. Sup. Ct. J. 597

Facts

F.E. Appling Interests, a general partnership, and Boca Chica Development Company entered into a settlement agreement with Victoria Savings Association (VSA) to resolve a lender liability claim. The agreement was based on VSA's representations that it complied with federal requirements for enforceability against the FSLIC. However, after VSA was placed in receivership, the FSLIC determined that the settlement was not binding due to lack of proper approval from VSA's Board of Directors. Appling then sued VSA's attorneys, McCamish, Martin, alleging negligent misrepresentation regarding the enforceability of the settlement.

With trial set for March 13, 1989, Boca Chica feared that the Federal Savings & Loan Insurance Corporation would declare VSA insolvent and take it over before a judgment could be obtained. If VSA were placed in receivership, Boca Chica's claim, based on the breach of an oral promise, would be unenforceable against VSA.

Issue

Whether a nonclient can sue an attorney for negligent misrepresentation under the Restatement (Second) of Torts § 552 without the requirement of privity.

Whether the absence of an attorney-client relationship precludes a third party from suing an attorney for negligent misrepresentation under the restatement (Second) of Torts § 552.

Rule

A nonclient may bring a negligent misrepresentation claim against an attorney if the attorney has a duty to avoid negligent misrepresentation as defined by the Restatement (Second) of Torts § 552, irrespective of privity.

A negligent misrepresentation claim is not the equivalent of a legal malpractice claim and is not barred by the privity rule.

Analysis

The court analyzed the relationship between the parties and the nature of the negligent misrepresentation claim. It determined that the absence of an attorney-client relationship does not preclude a nonclient from suing for negligent misrepresentation, as the duty arises from the attorney's awareness of the nonclient's reliance on the misrepresentation. The court emphasized that the privity rule applies to legal malpractice claims but not to negligent misrepresentation claims, allowing for broader accountability of attorneys in their professional conduct.

The court of appeals noted, a negligent misrepresentation claim is not equivalent to a legal malpractice claim. Under the tort of negligent misrepresentation, liability is not based on the breach of duty a professional owes his or her clients or others in privity, but on an independent duty to the nonclient based on the professional's manifest awareness of the nonclient's reliance on the misrepresentation and the professional's intention that the nonclient so rely.

Conclusion

The Supreme Court affirmed the Court of Appeals' decision, allowing Appling's claim to proceed, thereby establishing that attorneys can be held liable for negligent misrepresentation to nonclients.

Because we hold that McCamish, Martin may owe a duty to Appling, irrespective of privity, we affirm the judgment of the court of appeals, remanding this cause to the trial court.

Who won?

F.E. Appling Interests prevailed in the case as the court ruled that they could sue the attorneys for negligent misrepresentation despite the lack of privity.

The court of appeals reversed and remanded on the theory that, even absent privity, an attorney may owe a duty to a third party to avoid negligent misrepresentation.

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