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Privity and Entity Representation

Rechberger v. Scolaro, Shulman, Cohen, Fetter & Burstein, P.C., 45 A.D.3d 1453, 848 N.Y.S.2d 459 (2007)

NY Underlying Commercial Transactions

Student Contributor: Maninder (Meena) Saini

Facts: Plaintiff (Rechberger) filed a lawsuit against defendant (law firm), alleging legal malpractice. Plaintiff was seeking damages for investment losses arising from the defendant’s malpractice. The plaintiff contended that defendant’s representation of a corporation of which plaintiff was a shareholder establishes that defendant had an attorney-client relationship with plaintiff.

Issue: Does an attorney’s representation of a corporation establish an attorney-client relationship with its investors/shareholders?

Holding: The Appellate court held that the defendant lacked an attorney-client relationship with plaintiff. A “unilateral belief by parties that they had an attorney-client relationship with an attorney does not by itself confer upon them the status of clients,” for purpose of a legal malpractice action. The plaintiff’s complaint was dismissed.

Rule: A unilateral belief by one party that an attorney-client relationship exits is not dispositive of the actual existence of such a relationship. To succeed on an action for legal malpractice, a plaintiff must prove, among other things, the existence of an attorney-client relationship.

Lesson: This case illustrates the principal of privity between individuals, corporations and attorneys. An attorney is not liable to plaintiff for damages in a legal malpractice action unless the attorney and the plaintiff had a direct attorney-client relationship. In this case, the defendants met its burden by establishing that it had no attorney-client relationship with plaintiffs.

NOTE: See also, RPC 1.13 Organization as the Client, where the representation by a lawyer of an entity is separate and distinct from its members. That Rule applies, with few exceptions, to business entities and shareholders, partners or members.  

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Posted in: New York, Privity