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Bassford Remele is a full service litigation firm located in Minneapolis, Minnesota. Founded in 1882, the firm represents local, national and international clients in all areas of civil litigation and dispute resolution.
Case Law Update
Date: March 7, 2008 — Minneapolis, MN
During the week of March 7, 2008, the Minnesota appellate courts released an amendment to Rule 68 and an opinion on the following topic that may be of interest to our clients:
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Legal Malpractice - Attorney/Client Relationship - Third-Party Beneficiary
1. MINNESOTA RULES OF CIVIL PROCEDURE - OFFER OF JUDGMENT
- The Minnesota Supreme Court Advisory Committee amended Minn. R. Civ. P. 68, effective July 1, 2008, to include new provisions for the payment of the prevailing party’s costs and disbursements based on the amount of an offer of judgment or settlement.
At any time more than 10 days before trial, any party may serve an offer of judgment or settlement upon an adverse party. The offering party must structure the offer in terms of a “damages only” offer or a “total obligation” offer. Unless an offer expressly states that it is a “total obligation” offer, it will be presumed to be a “damages only” only offer. The primary difference between the two is that a “damages only” offer does not include then-accrued prejudgment interest, costs and disbursements, or attorneys’ fees.
If the offer of judgment is accepted, judgment will be entered for the entire amount of the offer if the offer was a “total obligation” offer. However, if the accepted offer was one for “damages only,” the court will determine, in its discretion, the applicable prejudgment interest, the offeree’s costs and disbursements, and any applicable attorneys’ fees.
If a plaintiff rejects a defendant’s offer, and the judgment turns out to be more favorable to the defendant than the offer, the plaintiff must pay the defendant’s costs and disbursements incurred in the defense of the action after service of the offer (this is different from the former rule allowing recovery of all costs incurred from the beginning of the case). Notwithstanding any attorneys’ fees that the plaintiff may be due for other reasons, the plaintiff is precluded from recovering any of its costs and disbursements incurred after service of the offer.
If a defendant rejects a plaintiff’s offer, and the judgment turns out to be less favorable to the defendant than the offer, the defendant will be required to pay double the plaintiff’s costs and disbursements that the plaintiff incurred after service of the offer, plus the plaintiff’s actual costs and disbursements incurred prior to service of the offer.
There is a “hardship” exception in the amended Rule. If a court determines that any of the payment obligations would impose an “undue hardship” on either party or “otherwise be inequitable,” it may, in its discretion, reduce the amount of the obligations to eliminate any undue hardship or inequality.
The “damages only” and “total obligation” part of the offer comes into play in determining whether the relief rewarded is less or more favorable to the offeree. A “damages only” offer is compared to the actual damages awarded to a plaintiff, whereas a “total obligation” offer is compared with those damages, as well as applicable pre-judgment interest, the offeree’s taxable costs and disbursements, and applicable attorneys’ fees accrued up to the date of the offer. The Committee differentiated between these two types of offers to remove any ambiguities or misunderstandings between the parties. According to the Committee, it allows the party making the offer to “control and understand the effect of the offer.”
The amended Rule expressly provides that nothing in the Rule creates a right to recover attorneys’ fees or to prejudgment interest.
Minn. R. Civ. P. 68.0.1 (amended Feb. 29, 2008).
2. LEGAL MALPRACTICE – ATTORNEY/CLIENT RELATIONSHIP - THIRD-PARTY BENEFICIARY
- In order for a non-client to proceed in a legal malpractice action, that party must be a direct and intended beneficiary of the attorney’s services, affirming Marker v. Greenberg, 313 N.W.2d 4 (Minn. 1981).
- A third party is a direct and intended beneficiary of an attorney-client relationship if: (1) a transaction has as a central purpose an effect on that party, (2) the client intends the effect as a purpose of the transaction, and (3) the attorney is aware of the client’s intent to benefit that party.
- An implied contract for legal services does not exist between an attorney and a party if the attorney is unaware of the party’s identity, there are no communications between the attorney and that party, and there is no notice to the attorney that he or she is expected to represent the party.
Miller & Schroeder (“M & S”) hired the Dorsey & Whitney law firm to structure and secure a casino loan. When the loan went unpaid, respondent bank sued Dorsey for legal malpractice. The bank was never Dorsey’s client, but it claimed to have been entitled to the benefit of the M & S attorney-client relationship by virtue of being a “third party beneficiary” of the legal services that Dorsey performed for M & S.
The district court granted summary judgment for Dorsey on the grounds that the bank was neither a client nor a third party beneficiary. The court of appeals reversed, and the Minnesota Supreme Court reversed the decision of the court of appeals and reinstated the judgment of the district court.
When the bank’s efforts to collect the outstanding amounts were exhausted, it sued the Dorsey firm for legal malpractice, claiming that Dorsey was negligent in advising M & S to close the loan without waiting for approval from the National Indian Gaming Commission (NIGC) or waiting to see whether approval had not been given.
In light of some confusion in its prior Marker decision, the Court elaborated on the meaning of “a direct and intended beneficiary” entitled to proceed in a legal malpractice action. To be a direct and intended beneficiary, an attorney must be aware of the client’s intent to benefit the third party. A contrary rule would serve to reduce an attorney’s zealous advocacy on behalf of his or her clients for fear of harming an unknown third party. In this case, the record was devoid of any suggestion that Dorsey knew of its client’s intent to benefit the third party, and there was no evidence that an implied contract for legal services existed between Dorsey and the bank participants.
McIntosh County Bank v. Dorsey & Whitney, LLP, Minnesota Supreme Court, No. A06-486, March 4, 2008.
[Bassford Remele, A Professional Association, represented amicus curiae Minnesota Lawyers Mutual Insurance Company supporting the law firm’s position.]
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C. Lundberg, C. Morris, K. Putney, R.A. Williams, |
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