Estate of Spencer v. Gavin, 400 N.J. Super 220, 946 A.2d 1051 (App Div. 2008)
NJ Underlying Wills, Trusts & Estates.
Facts: Gavin and Averna, had their law offices in the same building and frequently worked on cases together. Gavin, was executor of Spencer’s will and he hired Averna to establish a charitable foundation pursuant to the will. Spencer’s beneficiaries later sued Gavin for embezzling money from the estate, and Averna for failing to blow the whistle on Gavin since he could have prevented the thefts.
Issue: What was Averna’s duty to the Estate?
Ruling: The trial court dismissed the complaint as to Averna. The Appellate Division reversed and remanded, holding that Averna had a duty to Spencer based on these factors:
- Averna and Spencer had an attorney-client relationship. Averna worked only on the charitable foundation, but it was formed at the direction of Spencer’s will. In addition, (a) the estate paid Averna; (b) the estate benefited from his work and (c) Averna did not limit the scope of his representation to the foundation.
- Averna’s close and ongoing working relationship with Gavin gives rise to Averna’s duty to report Gavin’s misdeeds. There was no de facto partnership between them because they did not exercise "joint control over a common business" nor was there a "community of interest in the profits or losses." But they had worked closely on 10 to 15 cases.
- RPC 8.3 (a) provides: "A lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority."
Lesson: A lawyer to whom work is referred by another attorney and who has a close working relationship with that referring attorney has a duty to report the referring attorney if he or she actually knows that the referring attorney has been misappropriating funds from the client. Failure to do so can be a departure from the standard of care, and can lead to malpractice liability to the client. It can also be an ethics violation for failure to "rat" on the referrer.