Let’s start with the basic principle: an attorney’s duty runs exclusively to the client apart from limited circumstances of fraud when an attorney may be liable to the client’s adversary. The question remains whether an attorney’s decision to keep her mouth shut – i.e. not to disclose key information to the other side – constitutes actionable fraud. According to a recent decision by the Texas Appeals Court, the fact that an attorney did not disclose information to her adversary does not constitute actionable misconduct.
In the underlying dispute in Blankinship v. Brown the parties intended to form a company to manage charity golf tournaments. One side of the transaction, however, was unaware that one would-be partner had previously executed a non-compete agreement prohibiting him from working in the industry. Although the defendant’s attorney was aware of the non-compete (having previously drafted the document on his client’s behalf), he did not share this information with his client’s adversary. Upon learning of the non-compete agreement, the plaintiffs terminated the pending agreement and sued the attorney claiming that he owed them a duty to disclose.
The Appeals Court confirmed that adversaries owe very limited duties to each other. Moreover, the court held that adversaries have no basis to rely upon the representations of opposing counsel and dismissed the suit.
Potential liability from third-parties/non-clients is a hot button topic amongst the professional liability community. Generally, professionals are concerned with providing the applicable standard of care to clients. Often, the task to also consider liability arising from conduct to non-clients further complicates matters and perhaps may fall below the professional’s radar. This decision provides a welcome clarification that attorneys do not owe a duty of disclosure to non-clients.