LAW OFFICE OF DAVID J. STERN, P.A., Petitioner,
v.
SECURITY NATIONAL SERVICING CORPORATION, Respondent.
Supreme Court of Florida.
*964 Robert M. Klein, Gregory S. Glasser, and Cayla B. Tenenbaum of Stephens, Lynn, Klein, et al., Miami, FL, for Petitioners.
Nancy W. Gregoire of Bunnell, Woulfe, Kirschbaum, Keller, McIntyre, Gregoire, and Klein, P.A., Fort Lauderdale, FL, for Respondents.
BELL, J.
Law Office of David J. Stern, P.A. (Stern) seeks review of the Fourth District Court of Appeal's decision in Security National Servicing Corp. v. Law Office of David J. Stern, P.A.,
This case involves a legal malpractice claim arising out of an attempted mortgage foreclosure. Briefly, Security National alleges that Stern committed legal malpractice by filing an untimely foreclosure action and by voluntarily dismissing a previously filed, timely foreclosure action on the same mortgage. This blunder apparently occurred because Stern, having realized its error in filing the untimely action, intended to dismiss it but instead dismissed the timely foreclosure action by mistake. Stern continued to prosecute the untimely foreclosure action, and the trial court entered summary judgment against it. Meanwhile, the mortgage and note were assigned several times before Security National finally acquired them during the appeal in the foreclosure action. Security National retained Stern as counsel to represent its interests in the appeal. Ultimately, the Second District affirmed the trial court's decision on appeal.
Subsequently, Security National brought a legal malpractice action against Stern, claiming to have standing either (1) by virtue of its attorney-client relationship with Stern or (2) as the assignee of the mortgage and note involved in the underlying foreclosure action. The trial court entered summary judgment against Security National, but the Fourth District reversed. The Fourth District held that Security National has standing to sue Stern as the assignee of the mortgage and note. See Stern,
Now Stern seeks review by this Court of the Fourth District's decision. For the reasons stated, we conclude that Security National lacks standing to sue Stern for legal malpractice either by attorney-client relationship or by assignment. Therefore, we quash the decision below.
FACTUAL AND PROCEDURAL BACKGROUND
The Fourth District described the facts of this case as follows:
This legal malpractice action arises out of a botched mortgage foreclosure. Security *965 National is the transferee of the underlying note and mortgage. . . .
. . . In 1997, the holder of the note and mortgage, UMLIC-SIX CORP., timely filed a mortgage foreclosure action. While that action was pending, UMLIC-SIX assigned the loan to EMC Mortgage. EMC hired Stern to foreclose the loan. Stern filed a second foreclosure action on the same note and mortgage on December 15, 1998. By this time, the statute of limitations had already expired, so that this 1998 foreclosure action was untimely.
On February 19, 1999, Stern substituted as counsel in the timely 1997 foreclosure suit, then five days later voluntarily dismissed that timely action, leaving only the untimely action intact. Stern essentially admits that this was malpractice.
On August 27, 1999, EMC assigned the loan to Universal Portfolio Buyers, Inc. (Universal). Stern continued on as Universal's counsel in the untimely 1998 action. On October 15, 1999, Universal assigned the loan to North American Mortgage Co. (North American). Stern remained as North American's counsel in the 1998 action.
On July 24, 2000, the owner of the encumbered property moved for summary judgment on statute of limitations grounds. On November 5, 2000, the trial court entered summary judgment for the defendant. North American appealed.
On April 30, 2001, while the appeal was pending, North American assigned the loan to Security National. The record does not reflect whether there was consideration for this transfer or whether Security National had knowledge of the status of the foreclosure at the time. Thereafter, Stern remained as counsel representing Security National, but only for a month or two.
On December 7, 2001, the second district affirmed the final judgment. [On November 5, 2002,] Security National . . . brought this legal malpractice action against Stern. The complaint alleges negligence in dismissing the timely 1997 action (at the time EMC owned the loan) and in failing to timely move to reinstate the 1997 action until after the motion for summary judgment was filed (potentially spanning the ownership of EMC, Universal, and North American).
Although the trial court stated in her order that she "may take issue with the fairness of such ruling," she felt bound to enter summary judgment on Stern's behalf because there was no attorney-client relationship between Stern and Security National "at the time the cause of action accrued."
Stern,
On February 16, 2006, Stern filed a notice to invoke this Court's discretionary jurisdiction. Stern claims that the Fourth District misapplied and improperly extended our holding in Kaplan, which was expressly limited to the particular facts of that case. Stern argues that Security National does not have standing either (1) by its attorney-client relationship with Stern or (2) by an implied general assignment of the malpractice claim. We address both of *966 these issues in turn. As stated earlier, we ultimately determine that Security National does not have standing to sue Stern for the legal malpractice it alleges.
STANDING BY ATTORNEY-CLIENT RELATIONSHIP
The Fourth District properly concluded that Security National's attorney-client relationship with Stern did not give it standing to bring a legal malpractice action based upon acts that occurred during Stern's representation of a prior holder of the note and mortgage. As the Fourth District explained:
A legal malpractice action has three elements: 1) the attorney's employment; 2) the attorney's neglect of a reasonable duty; and 3) the attorney's negligence as the proximate cause of loss to the client. See Kates v. Robinson,786 So.2d 61 , 64 (Fla. 4th DCA 2001). For statute of limitations purposes, a cause of action for legal malpractice does not accrue until the underlying adverse judgment becomes final, including exhaustion of appellate rights. See Silvestrone v. Edell,721 So.2d 1173 , 1175 n. 2 (Fla. 1998). That is the first point at which there is a redressable harm. Id. at 1175. Until then, a malpractice claim is "hypothetical" and damages are "speculative." Id.; see also Hold v. Manzini,736 So.2d 138 , 142 (Fla. 3d DCA 1999) ("mere knowledge of possible malpractice is not dispositive of when a malpractice action accrues"). Security National points to this law and argues that because it owned the loan by the time the appeal was completed and the cause of action accrued, the law regarding the assignment of legal malpractice claims is irrelevant. Simply put, it claims that it was the owner of the loan at the critical point in time.
By contrast, Stern points to language from our decision in Kates,786 So.2d at 64:
In stating a claim for legal malpractice, it is not sufficient merely to assert an attorney-client relationship. The plaintiff must also allege that a relationship existed between the parties with respect to the acts or omissions upon which the malpractice claim is based.
See also Maillard v. Dowdell,528 So.2d 512 (Fla. 3d DCA 1988). These cases rejected attempts by former clients to retroactively expand the scope of the attorney's representation. While they are factually different, the basic point seems sound: the time of the alleged negligent act or omission is the critical point for testing the scope and existence of the attorney-client relationship.
Stern,
STANDING BY ASSIGNMENT
We disapprove of the Fourth District's decision and conclude that Security National did not receive a valid assignment of the right to sue Stern for legal malpractice. First, in Kaplan, we did not adopt the minority, case-by-case approach regarding the assignment of legal malpractice claims. We continued to adhere to the majority view that legal malpractice claims are generally not assignable. Second, the Fourth District's reliance on Kaplan is *967 further misplaced because the facts in Stern are significantly different from those in Kaplan. Third, the relevant policy considerations in cases such as this weigh against recognizing the assignment of a legal malpractice claim in a general assignment of a note and mortgage. We address each of these reasons in order.
First, the Fourth District misinterpreted our holding in Kaplan as an abandonment of the majority view which generally prohibits legal malpractice assignments in favor of the minority, case-by-case approach, which permits all legal malpractice assignments that do not violate relevant policy principles. As we explained in Kaplan, "[a] majority of the states that have examined this issue, including Florida, have held that legal malpractice claims are generally not assignable. . . . A minority of jurisdictions allows assignment of legal malpractice claims[.]"
The significance of Kaplan is not a narrow point pertaining to the attorney-client privilege, but rather the more broad view that the door is now open to assignment of legal malpractice actions in exceptional cases which do not fully implicate the core policy concerns underlying the general rule.
Stern,
Kaplan was the first and only case in which this Court permitted a limited exception to the general prohibition on legal malpractice assignments, and our holding was confined to the specific facts and circumstances of that case. Specifically, Kaplan involved the following facts:
Medical Research Industries, Inc. (MRI), a Florida corporation, developed and marketed homeopathic medical products. To raise money for capital improvements, MRI decided to issue a private placement of shares in the company. MRI's majority shareholder, William Tishman, consulted attorneys who prepared private placement memoranda. Through four private placements between 1996 and 1998, MRI raised over $50 million from about 2000 shareholders. Later, Tishman borrowed about $18 million in unsecured loans from MRI, leading to its eventual insolvency. MRI sued Tishman to recover the loan amount and obtained a judgment. Unable to satisfy the judgment, however, MRI executed an "Assignment for the Benefit of Creditors" to Donald Kaplan. Kaplan then sued for legal malpractice the attorneys who prepared the private placement memoranda. The trial court granted the attorneys' motions to dismiss, concluding that legal malpractice claims are personal and not assignable and are exempt from levy and sale under an execution of assignment.
Thus, in Kaplan we reaffirmed our adherence to the majority view that most legal malpractice claims are nonassignable. In so doing, we necessarily rejected the minority, case-by-case approach of evaluating whether particular assignments violate public policy concerns. We do so again in this case.
Second, we also disapprove of the Fourth District's reliance on Kaplan because the factual circumstances in Stern are not analogous to those in Kaplan. In Kaplan, "[t]he attorneys owed a duty to the public when advising MRI and preparing the private placement memoranda." Kaplan,
Kaplan also differs from Stern in that the assignment of the legal malpractice claim in Kaplan was express, whereas Security National asserts an implied assignment of the legal malpractice claim through the general assignment of the note and mortgage. We find that the right to bring an action against Stern for legal malpractice is not one of the rights Security National acquired when it purchased the note and mortgage by general assignment. First, we note:
As a general rule, the assignee of a nonnegotiable instrument takes it with all the rights of the assignor, and subject to all the equities and defenses of the debtor connected with or growing out of the obligation that the obligor had against the assignor at the time of the assignment.
State v. Family Bank of Hallandale,
In Stern, the legal malpractice claim arose from the personal attorney-client relationship established when EMC hired Stern to enforce its rights under the note and mortgage. This attorney-client relationship was not inherent in those instruments themselves. In other words, the right to sue for legal malpractice is not "connected with or growing out of" the relationship between the mortgagor and mortgagee; rather, the legal malpractice claim is connected to and grows out of the separately established relationship between the attorney and the client. See Family Bank of Hallandale,
Third, we disapprove of the Fourth District's decision below because the relevant policy concerns weigh against permitting legal malpractice assignments. As we noted in Kaplan, the following passage from California's Second District Court of Appeal well explains the policies against legal malpractice assignments:
It is the unique quality of legal services, the personal nature of the attorney's duty to the client and the confidentiality of the attorney-client relationship that invoke public policy considerations in our conclusion that malpractice claims should not be subject to assignment. The assignment of such claims could relegate the legal malpractice action to the market place and convert it to a commodity to be exploited and transferred to economic bidders who have never had a professional relationship with the attorney and to whom the attorney has never owed a legal duty. . . . The commercial aspect of assignability of . . . legal malpractice [actions] is rife with probabilities that could only debase the legal profession. The almost certain end result of merchandizing such causes of action is the lucrative business of factoring malpractice claims which would encourage unjustified lawsuits against members of the legal profession, generate an increase in legal malpractice litigation, promote champerty and force attorneys to defend themselves against strangers. The endless complications and litigious intricacies arising out of such commercial activities would place an undue burden on not only the legal profession but the already overburdened judicial system, restrict the availability of competent legal services, embarrass the attorney-client relationship and imperil the sanctity of the highly confidential and fiduciary relationship existing between attorney and client.
Kaplan,
As to the first policy concern, the Fourth District reasoned that "[t]he case . . . does not involve personal services. It also seems unlikely that EMC or North American shared privileged information *970 with Stern." See Stern,
We also disagree with the Fourth District's conclusion that permitting legal malpractice assignments in this context would not tend to create a marketplace for legal malpractice claims. To the contrary, this is precisely the type of transaction that our precedent warns against. See Kaplan,
In short, the assignment of legal malpractice claims that arise in mortgage foreclosures violates the two policy concerns underlying the general prohibition against such assignment.
CONCLUSION
For the reasons expressed above, we quash the Fourth District's decision and hold that Security National does not have standing to bring an action against Stern for legal malpractice either through an attorney-client relationship or by general assignment.
It is so ordered.
WELLS, ANSTEAD, and CANTERO, JJ., concur.
LEWIS, C.J., concurs in result only with an opinion.
PARIENTE, J., dissents with an opinion, in which QUINCE, J., concurs.
QUINCE, J., dissents with an opinion, in which PARIENTE, J., concurs.
LEWIS, C.J., concurring in result only.
I respectfully disagree with the holding of the majority that the assignment of the legal malpractice claim in the instant matter was not permissible under our previous decision in Cowan Liebowitz & Latman, P.C. v. Kaplan,
Contrary to the assertions of the majority, the decision of this Court in Kaplan was not "confined to the specific facts and circumstances of that case." Majority op. at 967. Instead, the Kaplan decision established factors to be applied to permit the assignment of legal malpractice claims in situations where the legal services provided by the attorney are not personal in nature and therefore do not involve any confidential communications that would trigger the policy concern of protecting the attorney-client privilege, which generally justifies the prohibition against the assignment of legal malpractice claims. See Kaplan,
In the instant matter, as in Kaplan, the legal services provided were not personal in nature. See id. at 759. A mortgage foreclosure action requires only that the claimant be the owner and holder of the note and mortgage and that the mortgagee has defaulted on that note and mortgage. See Chemical Residential Mortgage v. Rector,
Additionally, upon application of the underlying principles of Kaplan, the policy concerns that generally militate against permitting the assignment of legal malpractice claims are not present in the instant matter. As noted above, a foreclosure action requires only the mortgage and note, as well as a determination of whether the mortgagee has defaulted. See Chemical,
Finally, the majority's attempt to distinguish the instant matter from Kaplan based on the fact that the assignment in Kaplan was express, whereas in the instant matter the assignment was implied, is a distinction without legal significance. In Florida, unless a writing is required by statute, an assignment can be implied. See 3A Fla. Jur.2d Assignments § 18 (2006). Florida also recognizes the right to freely assign common law and statutory rights unless such an assignment offends public policy concerns. See VOSR Indus., Inc. v. Martin Props., Inc.,
In conclusion, the Fourth District below correctly applied the factors established by this Court in Kaplan and determined that the assignment in the instant matter was permitted under the reasoning of our earlier decision there. The legal services in the instant matter were not personal in nature and did not implicate confidentiality concerns. However, I concur in result only based on my continued objection to the broad reasoning employed by the majority of this Court in Kaplan, which has opened the door to the assignment of legal malpractice claims in potentially countless other contexts. We should either recede from Kaplan or apply the underlying factors used to support the Kaplan decision.
PARIENTE, J., dissenting.
I agree with Justice Quince's dissent and would approve the well-reasoned decision of the Fourth District in this case. The Fourth District followed our decision in Cowan Liebowitz & Latman, P.C. v. Kaplan,
I would follow the sound reasoning of those jurisdictions that have allowed "the assignment of a claim for malpractice that is part of a general assignment in a commercial setting and transaction that encompasses *973 a panoply of other assigned rights, duties, and obligations." Cerberus Partners, L.P. v. Gadsby & Hannah,
Further, as expressed by both of these courts, the attorney-client privilege is a non-issue given the commercial and transactional circumstances of these types of cases because the assignment operates as a waiver of any attorney-client privilege. See id.; Cerberus Partners,
The facts of this case highlight why allowing the assignment of this type of legal malpractice claim violates no conceivable public policy. Here, the act of malpractice occurred in 1999 when attorney Stern voluntarily dismissed the timely 1997 foreclosure action, leaving only the untimely 1998 foreclosure action intact. At the time, EMC Mortgage Corporation held the mortgage. However, based on our decision in Perez-Abreu, Zamora & De La Fe, P.A. v. Taracido,
Frankly, it would be difficult for an outside observer not to conclude that the per-petuation of a rule that prohibits the assignment of legal malpractice claims in this context serves only to protect a clearly negligent attorney at the expense of the mortgage holders, who were engaged in legitimate commercial transactions. For these reasons, I must respectfully dissent.
QUINCE, J., concurs.
QUINCE, J., dissenting.
I do not agree with the majority that the assignment of the legal malpractice claim in this case would violate policy concerns which underlie the general prohibition against the assignment of legal malpractice actions. Therefore, I would approve the decision of the Fourth District Court of Appeal, which followed our decision in Cowan Liebowitz & Latman, P.C. v. Kaplan,
I agree with the majority that Kaplan is not an abandonment of Florida's general prohibition against the assignment of legal malpractice claims. Instead, in Kaplan we said in no uncertain terms that "most" or the "vast majority" of legal malpractice claims continue to be unassignable. This Court in Kaplan cited the prior cases from this Court that have addressed the assignability issue. We noted that in Forgione v. Dennis Pirtle Agency, Inc.,
As in Kaplan, neither the nature of the services nor the policy concerns require the nonassignability of the legal malpractice claim involved in this case. The majority is unwilling to presume that the law firm's representation in this case did not involve personal services or the disclosure of confidential information. As the Fourth District pointed out, the underlying service in this case is a botched mortgage foreclosure. The plaintiff in the malpractice action, Security National, is the transferee of the note and mortgage that was the subject of the foreclosure action. The law office, on the other hand, represented all of the holders of the note and mortgage beginning with EMC Mortgage. EMC, after getting an assignment of the note, asked the law firm to foreclose the loan. While the action was pending, EMC assigned the loan to Universal Portfolio Buyers, who in turn assigned the loan to North American Mortgage Company. While an appeal from the grant of summary judgment in favor of the property owner was pending, North American assigned the loan to Security. The Law Office of David J. Stern, P.A. continued to represent each entity in this chain of assignments. It is Stern's seamless, uninterrupted representation of EMC, Universal, North American, and Security in this matter that demonstrates that this type of representation for a commercial transaction lacks the unique and personal duties that characterize the typical malpractice claim that might be imperiled if we allowed the general assignment of legal malpractice claims.
The very nature of the mortgage industry itself further demonstrates a lack of unique and personal duties that often characterize *975 confidential relationships. The sale of mortgage loans is a very common transaction in this country. Average homebuyers are aware that their mortgages are likely to be sold to a new mortgagee at any time. It is more likely than not that as a member of an industry in which selling mortgages is an everyday occurrence, EMC was aware that the same information given to its attorney in this foreclosure action would necessarily flow to any assignee purchasing the note and mortgage while the action was still pending.
If Stern, as attorney for a company in the business of acquiring then selling mortgage loans, was concerned about confidentiality, he could have advised his client, EMC Mortgage, or his subsequent client, Universal Portfolio Buyers, or his subsequent client, North American Mortgage, of their ability to not assign any potential malpractice claim if they opted to sell the mortgage. There would be no imperilment of the sanctity of the relationship between an attorney and a client when that client is advised that any information divulged to the attorney can readily be kept confidential if the client values confidentiality more than the ability to assign the claim. Kevin Pennell, Note, On the Assignment of Legal Malpractice Claims: A Contractual Solution to a Contractual Problem, 82 Tex. L.Rev. 481, 500 (2003).
As to our public policy concern that we want to prevent creating a market for legal malpractice claims, I agree with the Fourth District that these concerns are more apparent when the legal representation and assignment occur in a non-commercial setting. See Security Nat'l Serv. Corp. v. Law Office of David J. Stern, P.A.,
I also do not believe that the assignment of the malpractice claim here would encourage an unjustified lawsuit against Stern or promote champerty,[1] two additional concerns noted by the majority. The record indicates that Stern botched this foreclosure and that National Security held the mortgage and note on the property when the judgment resulting from Stern's negligence became final. It was at this point that National Security was precluded from recovering on its note and mortgage. Id. This malpractice claim is thus meritorious and there is no encouragement of an unjustified lawsuit. It is not unjust to require Stern to compensate the holder of the mortgage that, because of his legal malpractice, is now unable to claim the property used to secure the mortgage.
Champerty requires a party unrelated to the lawsuit to form an agreement with a litigant in the suit to help pursue the litigant's claim in consideration for receiving part of the judgment. Black's Law Dictionary 246 (8th ed.2004). This is clearly not *976 the situation here. The origin of this policy concern was the Goodley court, which was deciding the case in 1976 based on a claim for malpractice arising out of a divorce proceeding. See Goodley
The majority also believes that allowing the assignment under these circumstances would create an incentive for both holders of mortgages and speculators to include the right to sue an attorney in failed foreclosures as a factor increasing the marketability of the mortgage. This seems highly speculative, and as one commentator notes:
Legal malpractice claims are very suspect. Many more claims end in defeat rather [than] victory. Such claims are quite often vigorously contested. . . . [B]ecause a rational buyer-assignee of any such claim will expect a stiff fight at the courthouse, a stable, routine market for such claims is unlikely to develop.
Kevin Pennell, Note, On the Assignment of Legal Malpractice Claims: A Contractual Solution to a Contractual Problem, 82 Tex. L.Rev. 481, 495-96 (2003) (quoting Michael Sean Quinn, On the Assignment of Legal Malpractice Claims, 37 S. Tex. L.Rev. 1203, 1215-16 (1996)). Malpractice suits are an expensive and lengthy process, and the outcome is never certain. It is unlikely that sophisticated business entities will begin taking the extreme risk of purchasing mortgage notes solely to sue attorneys for malpractice. Narrowing our holding to allow claims to be brought only by assignees that have retained the attorney in question to represent them in the same matter further ensures that the majority's fear of a market for such claims will never be realized.
I would affirm the lower court's ruling and hold that pursuant to a commercial assignment, the assignee holding a commercial instrument at the time a cause of action accrues owns a legal malpractice claim if the attorney committing the alleged malpractice was retained by that current assignee in the same matter.
PARIENTE, J., concurs.
NOTES
Notes
[1] Defined in Merriam-Webster's Collegiate Dictionary (10th ed.) as "a proceeding by which a person not a party in a suit bargains to aid in or carry on its prosecution or defense in consideration of a share of the matter in suit."